Focus needs to be on undoing the reorg, fixing streaming and finding a successor – for good this time
In the 999 days that Disney CEO Bob Iger’s short-lived successor Bob Chapek served as CEO, the company went through challenging times. The COVID-19 pandemic forced the parks worldwide to close, grounded cruise ships, shuttered movie theaters and halted production. But other problems of the Chapek era were self-inflicted: his disastrous handling of the political landscape in Florida; the gutting of Walt Disney Imagineering; an unnecessary battle with Marvel star Scarlett Johansson over profit participation; a headlong investment in content for Disney+ without a solid plan to monetize that content.
Iger has some work to do. Now back on board for the next two years for a full-blown corporate reset, here are what some of his biggest priorities need to be going forward.
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1. Dismantle the reorg
Iger has privately been vocal about his dislike of Chapek’s reorganization of Disney, which took power away from content executives and gave it to Kareem Daniel, a longtime Chapek ally and the head of the newly-formed Disney Media and Entertainment Group (DMED). Daniel, who was unceremoniously shown the door on Monday, oversaw budgeting for content and where that content would go, while also handling operations, sales, advertising, data and technology functions.
Chapek and Daniel sold the new structure as liberating creative executives; all they had to do was make something great and DMED would figure out where it went and how to sell it. But insiders complained that the silo led to unnecessary bottlenecking at key junctures; it became harder to get the green light on projects, even those developed internally, and the process became even more cumbersome as it went along.
Daniel, a former engineer with no creative experience, had virtually no allies in the company besides Chapek himself, multiple insiders told TheWrap. His appointment also irked more experienced executives, like Peter Rice, the veteran Fox exec who took over all of Disney’s TV operations after the 2019 Fox acquisition — until Chapek abruptly canned him this past June.
Iger made clear on Monday that he will undo what Chapek had established. “It is my intention to restructure things in a way that honors and respects creativity as the heart and soul of who we are,” he told the staff in a statement sent internally and shared with TheWrap. “As you know, this is a time of enormous change and challenges in our industry, and our work will also focus on creating a more efficient and cost-effective structure.” Creativity first!
2. Course-correct streaming strategy
Since Disney+’s launch in 2019, streaming has become a major priority for the company, with every business unit – including National Geographic, Walt Disney Animation Studios, Pixar, Marvel Studios and Lucasfilm – funneling major projects to the direct-to-consumer platform. In fiscal 2022, the company spent $32 billion on content. During the May earnings call, Chapek said, ““We’re very carefully watching our content cost growth.”
But it didn’t seem that way. While Disney+ added 12.1 million subscribers in the quarter ending Sept. 30, for a total of 164.2 million subscribers, the streaming division lost nearly $1.5 billion, more than twice as much as a year earlier. Worse, Chapek said that Disney+ wouldn’t achieve profitability until 2024, “assuming we do not see a meaningful shift in the economic climate.” (Recession? What recession?)
There needs to be a reason for people to return to Disney+ (and Hulu and ESPN+) and it can’t be because there’s a new “Star Wars” or Marvel show every six weeks. Iger will need to find a strategy that works, combining the need for fresh, groundbreaking series with a greater emphasis on the company’s deep (and largely ignored) catalog. There are many library titles that still need to go on Disney+. There’s no other streaming platform with the variety and depth of Disney’s.
Time to open up the vault.
3. Deal with the decline of broadcast and cable TV
In the most recent quarter ending Sept. 30, Disney’s operating income declined 14% to $1.4 billion. This decrease was directly tied to broadcasting income and downward results at ABC and other Disney-owned TV stations.
Even ESPN, once one of Disney’s crown jewels, was hit by another wave of cord-cutting, leaving many analysts to wonder if Disney should have sold the sports network off years ago, when it was still highly profitable. TV network revenue also shrank 5% to $6.3 billion — a reminder that linear television is on the decline in both viewership and revenues.
Analysts expect Iger to pursue a different approach that could include some radical shifts — even selling off assets like ESPN or linear television networks like ABC or ABC Family. “Iger has made public comments recently on the secular challenges in the linear TV ecosystem, which coupled with accelerating linear subscriber declines, could signal a potential openness to reevaluate strategic alternatives,” Bank of America analyst Jessica Reif Ehrlich said in a note to investors on Monday.
4. Stabilize the parks
In his short tenure, Chapek managed to infuriate both Wall Street and the company’s super-loyal consumer base. Chapek shuttered nearly every physical Disney Store (some outlets remain), cutting off a revenue stream and killing a legacy product that also promoted every new Disney movie, series and theme park attraction.
When COVID-19 shuttered the parks worldwide for months and docked the company’s many cruise ships, Chapek seized the moment to implement an ungainly reservation system and to repeatedly hike prices. Indeed, ticket prices just skyrocketed for the second time this year, with prices at Walt Disney World climbing another 12%. Over his term, Chapek introduced add-ons like “Genie+,” a $25-a-day service meant to optimize your time at the parks, and a “Lightning Lane” option where, for a single fee (again: up to $25), you could skip the line and walk onto a ride. The fee-based model replaced FastPass, a service that accomplished the same goals but for free. At Chapek’s Walt Disney World, micro-transactions are everywhere. And they add up. As a result, guest satisfaction has been abysmal.
Iger will be tasked with restoring good will at the theme parks, and Wall Street is also expecting a change in Iger’s approach to pricing. “Bob Chapek’s decision to restructure the Media and Entertainment Distribution segment (centralized budgetary power for content and distribution) and heavy emphasis on raising price across the organization (e.g. Theme Parks and DIS+) could be areas where Iger deviates,” Ehrlich wrote.
5. Improve talent relations
There is damage to be undone, starting with fallout from Chapek’s public insult of Scarlett Johansson in 2020. In a moment of corporate insanity the studio accused the “Black Widow” actress of “callous disregard” of the suffering over COVID because she sued the studio for switching her movie to streaming. Eventually, the two sides reached a settlement.
But Chapek also angered Pixar by releasing three of its movies (“Soul,” “Luca” and “Turning Red”) exclusively to Disney+, when they could have easily been big-screen blockbusters.
And then there’s the other creative talent including the thousands of Imagineers that Chapek either fired or forced into retirement because of his move-to-Florida mandate, including Joe Rohde, the man behind Disney’s Animal Kingdom. And he alienated still more with his fumbling response to Florida’s “Don’t Say Gay” bill which resulted in, among other things, prompting many employees to stage a massive one-day walkout.
The company’s creatives are already overjoyed at Iger’s return — but he has to commit to the culture that he once fostered. “I don’t think I’ve ever been so happy,” tweeted Josh Gad, the voice of Olaf in the “Frozen” films and an actual Disney Legend.
6. Make a big play
For his final act, Iger may eyeball a deal to end all deals — like a merger with Apple, which has $48.3 billion cash on hand. While Apple has been notoriously shy about acquisitions, and a Disney deal could draw regulatory opposition, some insiders believe Iger would jump at the opportunity to merge Apple’s superior technology with Disney’s powerhouse (and family-friendly) content. “He’d encourage it,” one former top Disney executive told TheWrap, noting that selling Disney would cement his legacy overseeing the company as well as make him “the last CEO of Disney.”
In his 2019 memoir, “The Ride of a Lifetime,” Iger actually floated the idea that the late Apple CEO (and Pixar founder) Steve Jobs would have welcomed a Disney-Apple merger. “I believe that if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously,” he wrote.
7. Find a successor (who sticks)
Even if Iger manages to find a buyer for Disney in the next two years, he still needs someone to run the place.
And succession has been a black mark on Iger’s otherwise remarkable legacy as CEO. For years, he groomed potential successors only to cast them aside: Former CFO Jay Rasulo stepped down in 2015, short-lived COO Tom Staggs left in 2016, and Kevin Mayer, who oversaw the successful launch of Disney+, followed in 2020. He wound up choosing Chapek, to disastrous results. And the bench is even shallower since Chapek ousted former Fox executive and head of TV content Rice earlier this year in what was widely seen as a play to remove a potential rival.
Several have suggested that the answer could be hiding in plain sight: If Disney were to acquire Candle Media, the company run by Staggs and Mayer, it could get a CEO and a president. This strategy worked wonders in the early 1980s, when Michael Eisner and Frank G. Wells were brought in to run the company, turning it from a family business to a multinational titan. (As one Disney historian put it today: As Chapek has proven, the job might be too much for one man.) The deal would have another major perk: Disney would also get a ton of great content, including Reese Witherspoon’s Hello Sunshine.
Granted, a 10-figure acquisition could be a challenge for the current Disney, which is already weighed down with $46 billion in long-term debt from its Fox acquisition — and has been expected to buy out Comcast’s minority stake in Hulu within the next few years. (Media mergers have also slowed this year amid rising inflation and interest rates.)
At the very least, we can all hope for a bloodless succession — you know, the type of thing you’d see on a Disney+ show.
Sharon Waxman and Lucas Manfredi contributed to this report.