Bob Iger Reveals the Road Map for His Two-Year Return
Time flies when you’re the CEO of The Walt Disney Company.
Bob Iger has led Disney for nearly three months, which doesn’t sound like much until you realize he’s only supposed to be here for two years.
Yes, Iger’s triumphant comeback is technically one-eighth of the way finished, but he hadn’t even announced his vision for the company.
Well, that statement was true until Iger held his first quarterly earnings phone call since his return.
Now, Disney’s CEO has revealed the roadmap for the rest of his two years in charge. Here’s what we just learned about Disney.
About the Why of the Budget Cuts
Let’s start with the frustrating conversation that will drive Disney’s decision-making for the next few months.
As a reminder, Disney has recently faced a proxy fight with billionaire Nelson Peltz, who wanted to decide Disney’s future even though he’s never been a media guy.
Peltz thinks in terms of numbers and couldn’t care less if people suffer along the way. That’s his track record.
In 2008, Peltz lost an initial bid to take control of Wendy’s, as Wendy Thomas – you know, THAT Wendy – had negotiated a sale to J. David Karam.
Peltz undercut the deal at the last moment by bidding up his own prices until the Wendy’s Board of Directors finally accepted an offer.
Almost immediately afterward, Wendy’s performed layoffs. The instant Peltz’s name entered the conversation with Disney, layoffs became inevitable.
A lot of what happened yesterday counted as a proactive attack on Peltz to get him out of the game. And it worked!
Within 24 hours of Disney’s earnings call, Peltz announced that he would drop his proxy fight. Iger’s dramatic win comes at a high price, though.
The Budget Cuts and the Reorg
Iger confirmed this bit of sadness by announcing Disney will terminate 7,000 employees as part of a massive companywide restructuring.
Nobody at Disney followed with an explanation of where the layoffs would occur. Still, that total represents three percent of the company’s workforce.
Disney takes this approach as part of an attempt to cut $5.5 billion in costs, which is a staggering number relative to the company’s scale.
Iger suggests that Disney will shave $3 billion from its non-sports content budget. The other $2.5 billion comes from “non-content” reductions.
Based on the information we have at hand, one of the cuts is in capital expenditures at theme parks.
Apparently, Disney has reduced the short-term budget by $700 million. You shouldn’t panic about this, though. It’s likely due to accounting tricks.
After all, Iger also announced a new Avatar experience at Disneyland and hinted that other franchises will appear at Disney theme parks soon.
Disney will spend money to save money as well. Yes, that’s a strange thing that happens in business.
In this example, Disney is reorganizing its organization into three entities.
Specifically, Disney Media & Entertainment Distribution died screaming today. Iger might have put on some stylish shoes and danced on its grave, too.
The new Disney structure starts with Disney Entertainment. Dana Walden and Alan Bergman will operate as Co-Chairpersons of this entity.
Meanwhile, Josh D’Amaro remains Chairman of Disney’s theme park empire, which is now known as…Disney Parks, Experiences and Products. So, that didn’t change.
The third entity has raised a few eyebrows. All ESPN networks have formed ESPN, which Jimmy Pitaro runs as Chairman.
We’ll talk about this extensively in the coming weeks on MickeyBlog.
For now, the notable part is that these four people probably become the most likely candidates to replace Iger as Disney CEO.
Notes about Disney’s Entertainment Empire
Iger stated that during his absence, executives debated spinning off or selling ESPN. Someone (Pitaro?) decided this move didn’t make sense for Disney.
Iger will apparently hold firm on that decision. If he’s bluffing, it’s a good one. During the call, the CEO relayed all the data points suggesting ESPN’s sustained strength.
Iger hinted that Disney may pass on some sports rights in the future. He stated that “we are simply going to have to get more selective.”
On the movie side, Disney expressed satisfaction with Black Panther: Wakanda Forever, which has earned five Academy Award nominations.
The film’s box office also enhanced Disney’s quarterly earnings. Recently, its availability on Disney+ has already proven wildly successful as well.
Meanwhile, Iger started the call by trumpeting Fox and thereby denouncing all critics of the $71 billion purchase…like Nelson Peltz.
Notably, Avatar: The Way of Water’s earnings for the fiscal first quarter, while significant, represent only part of its take. The quarter ended on December 31st, 2022.
The Avatar sequel should impact Disney’s fiscal second-quarter earnings even more.
The CEO also reconfirmed the company’s commitment to the theatrical experience.
While Iger stated that Disney+ and Direct-To-Consumer remain his focus, he first listed several impending blockbusters Disney will release this year.
Iger’s comments should provide some relief for theater owners. Also, he’s quietly acknowledging the financial importance of a phased-release strategy.
Disney missed its box office revenue during the pandemic and wants that back on the balance sheet.
The Business of Disney
Disney Chief Financial Officer Christine McCarthy stated that the $2.5 billion in “non-content” savings will be divided into “50% marketing, 30% labor, and 20% technology, procurement, and other expenses.”
If you’re in one of those fields, I’d gently suggest that you update your resume, just in case.
As for revenue, Bob Chapek probably threw his phone at something when he heard that all the changes will lead to Disney’s revenue increasing by high single digits this year.
Yes, that’s the same growth ratio Chapek promised in November, and it got him fired. Nobody’s crying for Chapek, though.
In truth, I realized during the call how much I had missed Iger’s encyclopedic knowledge and polish.
Chapek always came across as a condescending elementary school teacher on these things.
Speaking of Chapek, all his theme park price increases led to massive profits this quarter. Disney’s operating income in the Parks division increased by 25 percent.
Per capita guest spending continues to increase, and Iger added that Disney remains committed to reduced attendance.
The data suggests that guests prefer paying more for less crowded parks, which is anecdotally how I feel as well. I recognize it’s a wildly divisive topic, though.
Early 2023 trends suggest that the parks will continue their outstanding performance. And Iger reminded people that Disney Cruise Line’s revenue is like found money.
At this time a year ago, cruise vacations remained a dicey proposition for many. Now that the pandemic has ended, Disney cruises are overperforming.
In short, everything in the Parks division, the part we care about the most, shows signs of sustained drawing power.
Disney will continue to dominate the theme park industry for many years to come.
One Final Conversation
Iger has always had a habit of almost talking to himself at times. When he gets a kernel of a thought, he’ll talk through it because it may lead to an epiphany.
During the earnings call, this happened. Here’s an insight into Iger’s perception of what Chapek called the Disney Flywheel:
“We are going to rebalance a bit because those linear channels and movie theaters too still can provide us with significant amount of monetization capability.
“They enable us to amortize the cost better over multiple platforms and create some marketing cloud.
“When you think about it, Abbott Elementary airs on ABC, then it goes to Hulu.
“The demographic difference in age is tremendous. It’s like 60 years old or around, estimating on ABC and then the 30s on Hulu.
“That’s a perfect example how the linear platforms, while they still have an audience and could help us monetize, can still be used effectively, and we have that ability.
“And so we are going to monitor it very carefully. We are not in any way stepping away from streaming. It remains our number one priority. It is, in many respects, our future.
“But we are not going to abandon the linear or the traditional platforms while they can still be a benefit to us and our shareholders.”
What This Means…
There’s a ton to digest here, but Iger’s underlying point is simple. Pessimists suggest that linear television hamstrings Disney since the medium is dying.
Iger just casually tossed out some fascinating data points and a subtle demonstration of vertical integration to show why he’s not worried.
To Iger, the old media model of linear television and the new one of streaming complement each other well.
Even better, they allow for the splitting of costs. The Abbott Elementary ABC/Hulu scenario is the equivalent of choosing a restaurant where you know you’ll have leftovers.
You’re paying once, but you’re getting two meals. Disney may save on content by choosing more projects that have appeal on linear AND streaming.
To a larger point, Iger isn’t talking like someone who has any intention of selling Hulu, although he tried hard to disprove that during a CNBC appearance.
That probably means Disney will cut Comcast a check for $10 billion next year, which will be the next financial crisis.
Still, everything Iger said today reinforced that he remains the gold standard in media management.
Peltz knew this, recognized he was beaten, and thankfully dropped out rather than dragging out his drubbing.
Today is a good day for Disney fans.