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Black Widow looking intense outside as a fire burns behind her.

With the theater industry completely upended and a high level of uncertainty projected for the next six months to a year, Disney executives are facing an interesting decision. The Mouse House has a handful of very expensive, high upside movies just waiting to be released. There are basically three options: wait for movie theaters to reopen, release the titles for free on Disney+ or offer them on Disney+ for an additional fee, as we saw with Mulan. Release date movements over the past few months have pointed to the company wanting to wait for theaters to reopen, but now one high profile Disney investor is publicly imploring the company to pick another route.

Dan Loeb is a hedge fund manager whose Third Point company owns a sizeable stake in Disney. He’s famous for writing extremely aggressive letters to large companies he thinks are being poorly run. His latest letter to Disney CEO Bob Chapek was reportedly more positive and pleasant than his normal communications, but it also apparently laid out the case that the media giant should double what it’s spending on streaming programming in order to compete with Netflix. In an interview with Variety, the investor went even further, arguing Black Widow, which has been delayed, and others should be released on Disney+ in order to increase the subscriber base and make a real effort at competing with Netflix. Here’s a portion of his quote…

My understanding is that the old-line executives don’t want to go over the top with their big tentpole movies, which is why they announced they were pushing Black Widow and other movies to 2021. I don’t think they appreciate the tiger they have by the tail, which is to say the value they can drive by moving into a subscription model, which has been adopted by everyone from Microsoft to Amazon. It’s so value accretive.

Disney executives haven’t given a ton of insight into their strategies, but they have offered some signals that streaming is going to be more of a primary focus. They recently shifted around some resources to better accelerate that growth, and this letter pairs along with that very well. That being said, it’s still not exactly clear what the right long-term answer is. We don't know exactly how well Mulan did as a $30 supplemental Disney+ offering, but it seems like a solid number of subscribers did pay for it. Would those same subscribers continue ordering more new release movies or was that a one-off thing? We don't know. It's also unclear whether Disney would value those extremely invested subscribers more than attracting less invested potential subscribers who might join if those offerings were included for free. It's not like Netflix is charging users more for certain content. That being said, Disney took in $13B at the worldwide box office in 2019. That's too much money to just walk away from completely. So, it seems like at least in the near future, Disney is going to want, at minimum, some kind of hybrid model in which they can compete with Netflix but also generate billions in box office returns.

At this point, it’s unclear what is going to happen to Black Widow or the other titles Disney has either completed or is close to completing. Regardless of what Dan Loeb wants, Disney seems likely to hold at least a few of the titles for theaters in 2021, but if we start to see any more setbacks, that plan could change in a hurry. With Disneyland still closed and attendance way down at Disney World, revenue needs to start pouring in at some point. Black Widow is one of the best assets Disney has right now. Let's hope they use it in the right way.

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