Cowen Cautions Disney Against ‘Drastically Scaling’ OTT Content Spend

Disney should reject the suggestions of “activist investor” Dan Loeb with Third Point Management to redirect the company's $3 billion dividend toward over-the-top content production, Cowen wrote investors Thursday. “While we do expect Disney to announce increased investment in OTT products at its next investor day, we caution that drastically scaling content spend effectively would likely be difficult.” The analyst firm has been “bullish” on Disney+ because it thinks the service can reach “significant scale without overwhelmingly high content spend, due to the quality of Disney's evergreen library.” This "suggests the service could operate at significantly higher margins than competing services that rely on heavy ongoing investment in average quality content to combat churn.” Loeb appears to be under the “implicit assumption” OTT streaming will “devolve” to the model in which one or two dominant players “squeeze out everybody else,” said Cowen. “The history of content doesn't suggest that is likely, because it is far more difficult to monopolize content creativity than technological standards.” A Third Point spokesperson declined comment. Disney didn’t respond to questions. It hasn't announced a date for the next investor day.