Bob Iger’s second act to feature a slimmed-down Disney
In his first public comments since he began his second stint as Disney’s chief executive, Bob Iger reminded investors that he had already led the company through “two significant transformations”.
The first, which began early in his 15-year tenure, is remembered for Disney’s game-changing acquisitions of Pixar, Marvel and Lucasfilm. The second transformation set the stage for Disney’s high-stakes battle with Netflix in the streaming wars.
Now, Iger told investors in an earnings call on Wednesday, it was time for a third transformation. But if the first two were about bold acquisitions or entering cutting-edge new businesses, this shift sounded more defensive.
The main mission now is to put Disney’s streaming businesses — Disney Plus, Hulu and ESPN Plus — on a “path to sustained growth and profitability while also reducing expenses,” he said. These moves would help the company “weather future disruption, increased competition and global economic challenges”.
Wall Street had been eagerly anticipating Iger’s remarks, a reflection of his status as one of the most respected chief executives in the US. “When he took over from Michael Eisner [in 2005] he acted decisively and made very quick moves that really drove profits and earned him a ton of respect,” said Jessica Reif Ehrlich, an analyst at Bank of America, in an interview ahead of the call. “It’s important for him to message where they’re going now.”
It was a tough message. Disney said it would cut 7,000 jobs, or about 3 per cent of the company’s workforce, as part of a broad restructuring designed to save $5.5bn over the next few years. About $3bn will come from cuts on content spending — which exploded as the company built the Disney Plus business — while another $2.5bn will come from cutting sales, general and administrative costs.
Investors, who lost patience last year with the expensive land-grab phase of the streaming wars, were pleased to hear that the business would be profitable by the end of next year.
Disney shares rose 6 per cent in after-hours trading in New York, and rose $1.96, or 1.75 per cent, in early trading. The shares are up 25 per cent this year.
“Iger definitely was very honest with investors,” said Rich Greenfield, an analyst at LightShed Partners. “It is going to be — ongoing — a leaner company.”
Iger also managed to outflank the activist Nelson Peltz, who launched a campaign to gain a seat on the company’s board earlier this year. On Wednesday, Iger adopted one of Peltz’s main arguments, saying he planned to ask the board to consider restarting the dividend at a modest level by the end of this year and gradually increase it. “Our cost-cutting initiatives will make this possible,” Iger said.
By Thursday morning Peltz had given up the fight. “This was a great win for all the shareholders. Management at Disney now plans to do everything that we wanted them to do,” Peltz told CNBC.
Iger is hardly the only Hollywood executive looking to rein in costs after the excesses of the streaming wars, which have left all the combatants save Netflix bleeding red ink. Warner Bros Discovery has just completed a brutal round of cost cuts, while NBCUniversal and Paramount are also nursing streaming losses.
It was a loss of $1.5bn in Disney’s streaming business in the previous quarter that led the company’s board to finally lose patience with Bob Chapek, who was fired in November after 33 months as chief executive. Iger has moved quickly to dismantle an organisational structure that Chapek had put in place that stripped studio chiefs of much of their traditional authority to determine budgets, marketing plans and distribution strategy.
On Wednesday he announced a new structure that he said would hand authority back to Disney’s “creative leaders”, who would now be accountable for the financial performance of the content they produced.
“Our creative teams will determine what content we’re making, how it is distributed and monetised, and how it gets marketed,” Iger said. “I’ve always believed that the best way to spur great creativity is to make sure that people who are managing the creative processes feel empowered.”
The new structure divides the company into three units — Disney Entertainment, Theme Parks and the sports TV and streaming group ESPN — surprising many on Wall Street who had promoted the idea that ESPN should be spun off or sold. Once Disney’s cash cow, ESPN has been hurt by cord-cutting, but Iger insisted it still had an important place in the company. He added that the idea of shedding ESPN had been explored under Chapek and rejected.
On Thursday, Iger addressed another persistent source of speculation: the fate of the Hulu streaming service, which has 48mn subscribers and is known for critically acclaimed shows such as The Handmaid’s Tale, Only Murders in the Building, The Bear and The Dropout. Comcast owns a 33 per cent stake in Hulu that Disney can buy as early as 2024, though some analysts say Comcast could also be a buyer.
“Everything is on the table right now,” he said in an interview with CNBC. The assumption that Disney will buy out Comcast’s stake next year “isn’t necessarily the case,” Iger said. “I’m not gonna speculate about whether we’re a buyer or seller of it”.
In his remarks on Wednesday, Iger said Disney would focus on its core brands and franchises, such as consistent hitmakers Marvel, Pixar and Star Wars, that tend to deliver high returns. But general entertainment content, which could be interpreted to mean the type of programming Hulu specialises in, would be “aggressively” curated, Iger said.
“Hulu was not visible on the earnings call beyond the reduced emphasis on general entertainment,” said Greenfield, whose firm published a report last week titled Is Disney Preparing to Shop Hulu?
He added: “It makes me feel like it’s not a core business the way it was.”