Bob Iger Faces Disney’s Worst Problems
Absence makes the heart grow fonder.
That statement applies to Disney fans as well as Bob Iger, the CEO of The Walt Disney Company.
Once Iger left Disney, fans clamored for his return, as his chosen successor, Bob Chapek, repeatedly committed unforced errors.
Meanwhile, Iger missed the daily thrills of running the most influential storytelling company in the world.
Once Iger came back to Disney as the presumed conquering hero, everyone anticipated a joyous reunion full of successes. But that hasn’t happened.
A recent Bloomberg article has highlighted all the ways that the state of Disney surprised its boss.
Now, Bob Iger faces Disney’s worst problems, and he’s in danger of collapsing under their weight.
Here are the challenges Iger didn’t expect during his not-yet triumphant comeback.
The Collapse of Television and Film
Hyperinflation has impacted Hollywood studios in many ways.
Almost overnight, productions grew dramatically more expensive in 2020 due to the needed safety protocols during the pandemic.
As the pandemic waned in scope, the productions still required unique oversights to protect the mega-expensive stars.
All the while, the price of other production costs surged. So, when the pandemic finally ended, principal photography expenses remained the same.
Simply stated, making a television series or movie today costs Disney substantially more than it did in 2019.
Even worse, the collapse of international movie markets has shrunk the global box office potential of many films.
Since the start of 2020, only six films have earned more than $1 billion in theaters.
In 2019, Disney alone managed seven and took a part of the cut for an eighth, Spider-Man: Far from Home.
I don’t need to remind you about the horrors of Disney’s 2023 theatrical campaign. And it’s the bright side of Disney entertainment right now!
Disney’s Linear Networks division had functioned as a corporate cash cow for 25 years before the pandemic.
Since then, the speed of cord-cutting has escalated, while the expense of creating new projects has increased exponentially.
In 2016, Iger put a plan in place to modernize Disney and prepare for a Netflix-disrupted digital future.
The acquisition of Fox’s assets in 2019 should have secured this goal.
What nobody anticipated was how quickly television would collapse, with Charter Spectrum and Disney nearly giving up on the premise last month.
While Iger deftly saved the day, the cost of television and movie production won’t be going down anytime soon. Meanwhile, cord-cutting will continue.
The math on this problem is alarming.
High Debt and Incoming Expenses
This story ties into what we just discussed.
Disney originally bid $52 billion for Fox’s assets. Then, Comcast topped that offer and forced Iger to up his bid.
Ultimately, Disney paid the equivalent of $71 billion for Fox in a transaction that included cash and stock.
Along the way, Disney took on a reasonable amount of debt, which it could have paid easily…if not for the pandemic.
Disney suddenly lost multiple revenue streams like films, theme parks, and cruises.
Even worse, the whole thing happened so suddenly that there was no time to prepare.
According to Disney’s most recent earnings report, the company holds $47.18 billion in debt.
At some point in 2024, Disney also must pay Comcast more for its one-third ownership interest in Hulu.
This agreement calls for Comcast to receive at least $9.2 billion, but Comcast’s recent comments suggest it expects much more.
Disney has entered into negotiations with Comcast over this deal, but the parties may require arbitration to agree to the exact amount.
Stating the obvious, the last thing Disney needs right now is another $10+ billion in debt.
Not coincidentally, Iger is exploring options for the sale of assets he considers nonessential to the company.
Similarly, Disney may deal “no growth businesses” to people like Byron Allen, who are willing to pay up to $10 billion for the assets.
Iger has contemplated selling Star India for the same reason. It’d be the equivalent of trading digital services in India for full ownership of Hulu.
Obviously, Iger had no intention of bartering like this when he returned.
Now, some of the former anchor pieces of Disney qualify as little more than flotsam and jetsam.
Iger likely has no choice but to sell several assets to pay down debt and position Disney better for the future.
The Loss of Allies
During the pandemic, MickeyBlog chronicled a story that has taken on a secondary meaning now.
After only a few months on the job, Chapek identified the lingering presence of Iger as a threat.
Ostensibly, Iger remained as Executive Chairman at Disney to oversee creative direction.
Since Iger had hired many of Disney’s top executives, Chapek lacked friends at the top of the food chain and on the Board of Directors.
One of the underreported aspects of Disney right now is that Iger specifically picked all but one Board member. It’s almost entirely Iger’s team.
Chapek quickly recognized that the maxim was true. It was lonely at the top, especially for him. So, he proceeded to thin the herd.
Chapek carefully selected several executives who were loyal to him and created an inner circle of decision-makers.
The overwhelming majority of Iger’s allies found themselves on the outside looking in. Many of them either found new jobs or retired.
Once Iger returned, he discovered the same thing that Chapek had. Iger no longer knew most of the people running the upper echelons of Disney.
His former lieutenants had moved on to other opportunities, leaving Iger without the crack team he’d assembled over the years.
Not coincidentally, Iger has since reached out to former Disney executives Thomas O. Staggs and Kevin Mayer to work on potential asset sales.
Iger trusts them more than most of the people currently in charge of the assets, which is just…wow.
If you worked in one of those departments, how would you feel?
The Chapek Mistakes
Having lived through the trauma, I still struggle to differentiate pandemic-related problems from the mistakes of Bob Chapek’s creation.
That’s pretty much Bob Iger’s life right now, as one blurs into the other.
Iger spends much of his time trying to repair a lot of what went wrong during the pandemic.
The Bloomberg article in question describes Iger’s handling of the Florida Feud as a masterstroke. Here’s the exact quote:
“(Iger) played his hand flawlessly with (Florida governor Ron) DeSantis.”
Earlier this year, I would have said the same about Iger’s handling of the Nelson Peltz activist investor fiasco.
Chapek blithely invited the big bad wolf into Disney. Thankfully, Iger solved the problem temporarily before Peltz could blow the house down.
Left with no other recourse, Peltz has spent the body of 2023 destroying the Wendy’s fast-food chain instead.
However, Peltz has quietly increased his Disney holdings while the stock remains undervalued.
Now, Peltz is ready for round two as he demands multiple Disney Board seats.
While I can excuse most of Chapek’s mistakes as pandemic-related, the reality is that many of Iger’s worst problems come from the succession mistake.
Iger must solve the ongoing political battle with DeSantis/Florida in a way that removes Disney from any lingering culture wars.
Simultaneously, Iger must deal with the lingering financial struggles of Disney’s streaming services.
While Iger invented that plan in the first place, Chapek threw money at the problem so much that Wall Street recoiled in horror.
Disney had promised that Disney+ would earn money by the end of fiscal 2024. That’s (less than) one year from now. The clock is ticking.
Finally, if not for Chapek, Disney wouldn’t have any interactions with Nelson Peltz.
Iger is left dealing with the fallout of his own succession mistake and the havoc Chapek caused.
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Feature (Charley Gallay / Getty Images for Disney)