What Disney Can Learn From ValueAct’s Microsoft Experience

What’s past is prologue, as the saying goes. That’s one way to think about what’s likely to emerge from the scrum of activists surrounding Walt Disney, agitating both for and against CEO Bob Iger. Today’s news that Disney has struck an “information-sharing” agreement with ValueAct Capital, seen by many as the most sensible activist out there, is likely to cheer investors. An optimist may hope that ValueAct can spark the kind of recovery at Disney that occurred at Microsoft in the decade after ValueAct appeared on that company’s scene in 2013. (Or they may even hope for the profit and stock recovery Salesforce experienced after ValueAct co-CEO Mason Morfit joined the enterprise software firm’s board last March, helping to drive an efficiency push.)

Now, let’s not pretend ValueAct deserves all or even most of the credit for these turnarounds. But the activist surely made a positive contribution in both situations. And there are striking parallels between the challenges facing Disney and those Microsoft faced a decade ago. Back in 2013, Microsoft was grappling with the transition to the cloud from the older, much more profitable model of selling software to companies for use on their own computers. Disney today is similarly dealing with the transition to streaming from the older, much more profitable cable TV–based business. In both cases, the companies have faced rivals that jumped into a newer sector without the baggage of older businesses—Amazon launched Amazon Web Services, unconstrained by the legacy of an enterprise software business, while Netflix plays a parallel role in streaming.

At Microsoft, then-CEO Steve Ballmer had paved the way for the shift to the cloud, but he was under pressure to move even faster. So, months after ValueAct’s appearance, he stepped down, to be succeeded a few months later by Satya Nadella. Along the way, ValueAct struck a cooperation agreement with Microsoft, and Morfit, then ValueAct’s president, eventually joined the company’s board, sticking around until late 2017. The rest is history. Microsoft today has a market cap of $2.7 trillion, up from around $300 billion at the start of 2014, according to Koyfin data. (For another angle on Microsoft’s turnaround, check out our story today about the role of Microsoft marketing executive Takeshi Numoto in creating software bundles.)

The deal announced today between Disney and ValueAct reads a lot like the Microsoft agreement (at least based on the summaries announced by the companies). It seems like a good bet that Morfit will eventually join Disney’s board, likely short-circuiting the Nelson Peltz campaign for board seats. But Iger seems less likely to step down, if only because—as this Wall Street Journal account demonstrates—Ballmer was under intense pressure from Microsoft’s board even without ValueAct’s involvement. Iger, in contrast, appears to have strong support from his board, which by all accounts in late 2022 asked him to come out of retirement to take back the reins. Since then, he has taken action to fix Disney, slashing costs and taking steps to find partners for Disney’s aging ESPN sports behemoth. ValueAct hopefully can provide more expertise to guide Iger on the next steps. At the very least, Morfit can use his experience with other companies navigating major transitions—like Microsoft—to help Iger think through what he’s dealing with. Perhaps Morfit can persuade the TV veteran to spin off the older TV businesses, as some on Wall Street have advocated. If ValueAct can stiffen Iger’s resolve on a radical restructuring, it will prove itself a real class act.

Phone Companies’ Streaming Offers

TV executives are fretting about ways to keep consumers from chopping and changing their streaming services. But there is a solution: letting cellphone carriers package their plans with a streaming service. T-Mobile today, for instance, said it would include Disney’s Hulu service in the bundle of no-extra-cost streaming offerings included with T-Mobile cell service.

The telecommunications company already offers Netflix, Apple TV+ and others. Verizon, its biggest rival, has lately taken steps to get into the same game, introducing an offer that includes Netflix and Warner Bros. Discovery’s Max with its services. Typically under these deals, the cellphone provider pays the entertainment company for those who sign up, although details vary. It’s a marketing expense for the telecom firm and a great way for the streaming service to sign up subscribers. One issue is that the deals don’t always last, although T-Mobile has offered Netflix for years now. The phone company might find it hard to take Netflix away!

In Other News

SpaceX launched 21 satellites to expand capacity of its Starlink internet services, including six with capabilities to offer direct-to-cell service, the Elon Musk–controlled rocket company announced on Musk’s X platform.
Michael Saylor, founder and executive chair of MicroStrategy, is selling more than $200 million worth of shares in the software company, which has become a bitcoin-focused investment firm, according to a regulatory filing on Tuesday. The sale follows a surge of more than 300% in MicroStrategy shares over the past year, helped by a rally in bitcoin prices.

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Martin Peers is a columnist and co-executive editor of The Information, where he has worked since 2014. He was managing editor from 2015 through 2021. He previously worked for The Wall Street Journal and Daily Variety, among other publications. He is based in New York and is on Twitter @mvpeers.