Major Disney investor warns of damage to brand value due to ‘unsustainable’ pricing

The founder of investment firm Trian Partners has said Disney is in “crisis”, calling for major changes at the media giant and a seat on its board.

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Disney’s reliance on raising prices in its theme parks to make up for losses in its streaming business risks damaging the value of the brand and the business’s long-term health, activist investor Nelson Peltz has warned.

According to Peltz’s investment firm Trian Partners, which has 9.4 million shares in The Walt Disney Company worth approximately $900m (£739m), spending at Disney theme parks has risen around 40% since 2019.

Combined with complaints related to the wages of Disney’s in-park ‘cast members’, Peltz has said the parks’ “rapid margin expansion” leads him to believe the business is squeezing both customers and costs in an “unsustainable growth strategy”.

“Disney may believe that price increases and ‘nickel-and-diming’ of cast members and other costs is good for the bottom line… however, we suspect it is short-term thinking that puts the brand value and long-term health of the business at risk,” the investor said in a presentation this week.

Peltz also raised concerns about the loss-making streaming business, accusing Disney of a “lack of overall cost discipline” and failing to leverage its scale. Despite the strength of its brand and considerable advantage in intellectual property (IP), Disney+ has lost $11bn (£9bn) since 2017. The company expects the division to break even in 2024, after two more years of losses. Unilever praises purpose amid fresh criticism from major investor

The investor said Disney is in “crisis” and called for major changes at the media giant. He criticised decisions including “over the top” compensation to top executives and what he describes as an overpayment for the acquisition of much of Rupert Murdoch’s Fox.

The media company’s EBITDA profit has fallen by 23% since 2018 from almost $18bn (£14.8bn) to $13.8bn (£11.3bn), despite the parks having reached record profitability. At the same time, profit margin has fallen from 30.2% to 16.4%, and share prices are currently trading at an eight-year low.

Following a poor third quarter performance last year, Disney sacked CEO Bob Chapek and reinstated the company’s former boss Bob Iger for a two-year period. Iger spent 15 of his 40 years at Disney as CEO, before retiring from the company and being replaced by Chapek in 2020.

Peltz is known for the interventions he makes in the companies he invests in, and has sat on boards including Unilever, P&G and Mondelez. In 2018 he joined P&G’s board following a month-long proxy battle against the company, with its stock price rising almost 90% after.

He now seeks a position on Disney’s board, a request which the company has rejected. Trian Partners is therefore campaigning for shareholder support for Peltz instead, in what the investment firm is calling the ‘Restore the magic’ campaign.

Though critical of Iger’s reinstatement, Peltz said he doesn’t want to replace the CEO and cause “additional instability”. Instead, he hopes to work with leadership to help facilitate a “robust” succession planning process and take action to improve operations and financial performance, while ensuring customers receive “real value” across all business lines.

Earlier this week one of Unilever’s major investors reiterated his concerns over the FMCG giant’s brand purpose strategy, accusing the company of “virtue signalling”.

In his annual letter to shareholders, Terry Smith, the founder of Fundsmith Equity Fund, highlighted soap brand Lux’s stated brand purpose, which is ‘inspiring women to rise above everyday sexist judgements and express their beauty and femininity unapologetically’. “I will leave you to draw your own conclusions about the utility of this,” he said, adding: “When I last checked [soap] was for washing.”