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Disney answers activists with gaming investment, ESPN streaming plans

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Walt Disney (DIS.N) CEO Bob Iger hit back at activist investors on Wednesday with a slew of announcements, including a splashy investment in “Fortnite” maker Epic Games and plans to launch an ESPN streaming service in 2025.

Iger revealed the plans after Disney’s board of directors authorized a $3 billion share repurchase program for the current fiscal year, and declared a dividend of 45 cents a share, a 50 per cent increase from the dividend paid in January. Earnings-per-share topped Wall Street forecasts.

Together, the moves helped boost Disney shares nearly 7 per cent in after-hours trading.

The company has been under pressure from activist investor Nelson Peltz, who is seeking Netflix-like profit for its streaming business, better box-office performance of its movies and more details about its plans to make ESPN a dominant digital platform.

Peltz is asking shareholders to add himself and former Disney executive Jay Rasulo to the company’s board.

A spokesman for Peltz’s Trian Fund Management said of Disney’s earnings on Wednesday: “It’s déjà vu all over again. We saw this movie last year and we didn’t like the ending.”

Among the new initiatives, Iger said Disney would take a $1.5 billion stake in Epic Games. The companies will work together to create a “huge Disney universe” where consumers can interact with characters and stories from Disney, Pixar, Marvel, Star Wars and Avatar, he said.

“This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion,” Iger said in a statement.

The partnership signals another attempt at interactive entertainment for Disney, which in 2016 shut down its Disney Interactive Studios, publisher of the toys-come-to-life game series “Infinity,” and announced it would instead license its characters to outside game companies.

Iger also offered details about the long-anticipated streaming launch of the flagship ESPN sports network, which would be bundled with Disney+ and Hulu, and integrate features such as ESPN Bet, fantasy sports and e-commerce. He said it is likely to launch in August 2025.

A day earlier, Disney announced it would form a joint venture with Fox FOXA.O and Warner Bros Discovery (WBD.O) to launch a streaming sports service that would combine their broad portfolios of professional and collegiate sports rights as well as their networks, including ESPN, Fox Sports 1 and TNT.

Asked if the moves would assuage Peltz, Iger said the quarterly results and new initiatives showed a team that was motivated, focused and “very optimistic.”

“The last thing that we need right now is to be distracted in terms of our time, our energy, by an activist or activists that, frankly, have a completely different agenda, and don’t understand our company, its assets, even the essence of the Disney brand,” Iger said on CNBC television.

For the just-ended quarter, Disney posted earnings of $1.22 per share, excluding certain items, ahead of analysts’ consensus forecast of 99 cents per share.

Quarterly revenue was comparable to a year ago, at $23.5 billion, but short of projections of $23.6 billion.

Disney said it cut $500 million in costs across its business during the quarter, and that it remains on track to meet or exceed $7.5 billion in savings by the end of the current fiscal year.

The company’s Experiences unit, which includes its theme parks and consumer products, posted record revenue, operating income and operating margins.

Disney reaffirmed guidance that its streaming business would reach profitability by September. It reduced streaming operating losses to $138 million in the quarter, a dramatic improvement over a year ago, when it lost nearly $1 billion. The average monthly revenue per Disney+ user, outside of India, rose 14 cents.

The Disney+ streaming service shed 1.3 million subscribers, nearly double the loss of 700,000 that analysts forecast, after an October price increase.

The company forecast it would gain 5.5 million to 6 million Disney+ subscribers in its second quarter, with positive momentum in per-user revenue.

The Entertainment unit’s streaming business, which also includes Hulu and Disney+ Hotstar in India, reported revenue of $5.5 billion, just above forecasts, and marking a 15 per cent improvement from a year ago.

Overall revenue for the Entertainment segment, which encompasses Disney’s traditional TV business, streaming and film, dropped 7 per cent from a year earlier to $9.98 billion.

Disney’s sports division, which includes ESPN, the ESPN+ streaming service and Star in India, reported an operating loss of $103 million from a deepening loss at Star in India.

Theme park results were buoyed by the opening of the World of Frozen attraction at Hong Kong Disneyland and Zootopia at Shanghai Disney Resort. Higher attendance at those parks helped offset a drop at Walt Disney World in Orlando, Florida. The unit reported revenue of $9.1 billion and operating income of $3.1 billion.

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