Should Disney fold Hulu into Disney+ and spin off ESPN and ESPN+ into a separate company? One activist investor thinks so.

Dan Loeb, founder of the hedge fund Third Point, wrote a letter to Disney CEO Bob Chapek, urging him to make those changes. This isn't the first time Loeb has called for changes in the Disney streaming universe.

A Hulu-Disney+ Merger?

It’s widely anticipated that Disney+ will eventually absorb Hulu, but that deal likely won’t happen until 2024. Comcast still owns 33% of Hulu, and Disney would have to pay a premium to buy them out. Loeb is encouraging Disney to make “every effort” to close the deal sooner.

“It would even be prudent for Disney to pay a modest premium to accelerate the integration,” Loeb wrote. “We know this is a priority for (Disney) and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months.”

“We believe that integrating Hulu directly into the Disney+ DTC platform will provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market,” Loeb wrote.

Hulu and Hulu Live TV have a combined 46.2 million subscribers. Disney+ has over 152 million subscribers. Disney’s recent content decisions make it seem as if the company is trying to erode Hulu's standalone value, which will make Disney’s ultimate bill a lot lower when the deal with Comcast ends in 2024.

Should Disney Exit Sports?

ESPN has always been sort of an odd fit for Disney. For nearly a year, the company has been trying to decide whether to spin off the property entirely. Loeb pushed for that option in his letter.

“ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting,” Loeb wrote. “Customers of ESPN and sports leagues would be better served by a focused management team driving a leadership position in sports distribution.”

Given ESPN’s importance in the sports landscape, it is one of the crown jewels of TV that can still drive live viewership. Perhaps the question is whether Disney fans would be upset at losing access to sports as part of the Disney Bundle.

Disney’s Response

“We welcome the views of all our investors,” Disney said in a statement. “As our third quarter results demonstrate, The Walt Disney Company continues to deliver strong financial results powered by world-class storytelling and our unique and highly valuable content creation and distribution ecosystem.”

The corporation added, “Under the leadership of Bob Chapek, the company has delivered this strong performance while navigating the Covid-19 pandemic and its aftermath, including record streaming subscriptions. We have seen strong revenue and profit growth.”

While the Hulu merger is all but certain, the only question is when that occurs. All signs point to Disney running out the clock until 2024. As for ESPN, Chapek seems unlikely to give up control of such a prominent property, but if he’s merely looking to juice the stock performance, it might be an option down the road.