Performing for shareholders and cozying up to creatives is a tough balancing act, even for one of the most experienced media CEOs in the world
Walt Disney Co CEO Bob Iger impressed Wall Street on Wednesday by driving a hard bargain with the company’s creatives: You get your autonomy and authority back, he seemed to say, but you also must be accountable. Just what that accountability looks like was spelled out on the company’s first-quarter earnings call, with 7,000 layoffs and $5.5 billion in slashed spending, cuts that won’t make the jobs of filmmakers, showrunners and theme-park ride designers any easier.
Wall Street applauded Iger’s encore performance. The stock, which was already on an upward run this year with Iger back in the CEO chair, shot up 5% after-hours to $117.82. Investors always love to hear about profit-boosting cuts, of course, and CFO Christine McCarthy added another sweetener with the promised return of a “modest” dividend, which shareholders haven’t seen since 2019.
Investors may well have found Iger’s surprise reveal of feature film sequels to the “Zootopia,” “Toy Story” and “Frozen” franchises financially sensible, even if it read as a top-down pronouncement that doesn’t exactly jibe with promises of creative autonomy. But he also entrusted Dana Walden and Alan Bergman with full authority over the entertainment division, undoing a structure that his predecessor Bob Chapek had created to silo financial decisions in the unpopular DMED division.
Still, the splashy sequel plans couldn’t distract from the fact that Disney+ lost 2.4 million subscribers and $1.1 billion in the quarter — not as bad as the $1.5 billion in streaming losses in the previous quarter that helped Chapek get the boot, but a far leap from the profitability Disney has promised for the streaming business in 2024. The subscriber loss wasn’t as bad as analysts had predicted following a price hike for the ad-free version of the service that took effect in December, but it’s the first time Disney+ reported a quarter-over-quarter drop.
“The over $1.1 billion in losses for the streaming division is still a large number,” said Third Bridge analyst Jamie Lumley. “Accompanied with Disney+’s first subscriber losses, there remain a number of challenges for Iger.”
While Hulu and ESPN+ showed subscriber growth, those gains were offset by the Disney+ losses. Iger attributed the decline to subscriber drops suffered by Disney+ Hotstar. The Southeast Asian and Indian version of the streaming service was particularly hurt by the loss of streaming rights to the Indian Premier League and its buzzy cricket matches, highlighting the challenges of running a global streaming empire for audiences with diverse tastes.
Iger said on the Wednesday earnings call that the initial response to Disney+’s cheaper, ad-based tier as well as higher prices for the ad-free subscription was thus far generally positive. He pointed to strong interest from top-tier advertisers and noted that the price increase only caused a slight increase in subscriber churn. Nonetheless, as Iger and other executives conceded, both are big changes with impacts that likely won’t be felt for a while.
“A big question is how much momentum Disney’s ad tier will be able to build,” noted Lumley. “We’ve heard from our experts that Netflix may have rushed its ad-tier launch, which could create an opportunity for Disney to come out ahead when it comes to ad-supported offerings.”
Lumley also noted the challenges of finding new subscribers in the current environment, with Hulu and ESPN+ being available only in the U.S. compounding that problem.
“While the Disney earnings were a mixed bag, last quarter’s results had improved from [the fourth quarter] and the future plans were music to investors’ ears,” said Sean Nyberg, an attorney who runs the Disney Beat podcast and owns shares of the company. He added that despite Iger’s optimistic tone on the call, his overall message was that “Disney is on a mission to cut costs.”
That included the layoffs as well as cutting film budgets and marketing costs while raising streaming prices and reassessing sports-rights packages, streaming promotions and bundles.
“The cost of money is now much higher so better results are expected,” said Gerber.
Shareholder returns have been a key issue in the ongoing proxy battle between the Disney board of directors and activist investor Nelson Peltz, who is seeking a seat on the board. Shareholders will vote on his bid at Disney’s April 3 annual meeting.
“Peltz made this dividend reinstatement occur much sooner than it would have before,” said Nyberg. “So even if [he] loses his proxy fight in April, he has already forced change.”
Disney’s layoffs, at about 3% of a workforce that included 220,000 employees as of October, were smaller than recent sweeping cuts by Meta, Microsoft and Alphabet. But they were deeper than cuts made in recent months by media peers like Paramount, NBCUniversal and Warner Bros. Discovery.
Had Chapek managed to stay in power, he’d be facing all the same pressures from Wall Street over cutting costs and jobs. But Iger’s undoing of Chapek’s distribution-focused reorganization — deeply unpopular with creative teams that felt they had lost power to see their own works to market — is a key strategic difference. It’s a familiar maxim that constraints spark creativity. Iger is betting he can do just that, and somehow cut his way to growth. Or better yet, have his people come up with the answers.
Investors like Gerber said that the cutbacks were necessary. “It’s a highly competitive time for entertainment so this balance needed to happen,” he said. ”Iger is leading the way.”
Iger has the benefit of the doubt right now internally and externally, thanks to a history of success and an easy hand with the media. But he has a tough recipe to sell, and a lot to prove. It doesn’t take a business mastermind to greenlight sequels to your most popular animated franchises. The ultimate challenge will be selling his own encore on Wall Street — and in Burbank.
Before joining The Wrap, Scott Mendelson got his industry start in 2008 with a self-piloted film blog titled "Mendelson's Memos." In 2013, he was recruited to write for Forbes.com where he wrote almost exclusively for nearly a decade. In that time he published copious in-depth analytical and editorialized entertainment industry articles specializing in (but not exclusively focused upon) theatrical box office. A well-known industry pundit, Mendelson has appeared on numerous podcasts and been featured as a talking head on NPR, CNN, Fox and BBC.