What Wall Street Wants From Bob Iger
Tomorrow, November 27th, Bob Iger will host a Town Hall.
Theoretically, Iger will speak to the employees of The Walt Disney Company, but he’ll find other interested parties in Hollywood and especially on Wall Street.
So, what does Wall Street want from Bob Iger? Here’s what investors hope Iger discusses tomorrow.
What Is Disney Building?
Investors described Iger’s first year back at Disney as his “problem-solving phase.”
That’s a polite way of saying that Iger entered the This Is Fine meme and tried his best to put out the fires that his predecessor, Bob Chapek had started.
No, Disney wasn’t fine under Chapek, although the pandemic had plenty to do with the problem.
Now, Iger has mostly course-corrected Disney, which is a remarkable achievement in and of itself.
Disney’s finances were worse than anybody except maybe former CFO Christine McCarthy realized.
To his credit, Iger understands Wall Street. He recognized the flaws with Disney’s balance sheet and worked to address them.
While many of the changes were painful, Disney found $7.5 billion in savings, which is no small feat for a company with $89 billion in revenue.
Now, Disney has improved its free cash flow, one of the most significant indicators of a healthy business.
Since the water is no longer at Bob Iger’s neck, he’s not worried about Disney drowning now, something that wasn’t true in January.
Then, the question becomes: What is Disney building? Wall Street wants to know the answer to this mystery Iger is building.
Realistically, Iger is unlikely to tip his hand, as he’s too skilled a poker player for that.
Instead, the CEO will probably offer hints and tantalizing tidbits about what comes next, which has become his M.O. over the past decade.
We will discuss a few specific possibilities in the final section.
Fixing the Movie Business
Here’s the way that seems timelier than ever.
While you won’t read the article for a few days, I wrote about 2,200 words last night about the woeful state of Disney’s film business.
My current thought is that 2023 represents Disney’s lowest tide since the days of The Black Cauldron.
People got fired then, and they might get fired now. It remains to be seen, but such moves would be totally justified based on Disney’s 2023 performance.
On paper, Disney rolled out one of its best lineups ever.
Seriously, throughout the pandemic, fans pointed to 2023 as the year that Disney would make its triumphant comeback.
We all know how that turned out, which is to say poorly. And that’s a problem that will have ripple effects.
Disney’s entire business model, the machine Bob Chapek called the flywheel, relies on new, well-received films.
A good movie leads to hefty merchandise sales, theme park additions, streaming service subscriptions, physical media sales, and much more.
When something like Indiana Jones and the Dial of Destiny or Haunted Mansion fails, that’s not great, but it’s survivable.
People still know and love those two franchises/brands. With Wish or The Marvels, the machine breaks down if the films don’t deliver.
Wall Street wants to hear Bob Iger explain the steps he is taking to fix the machine.
Perhaps the most essential part of this discussion is that Iger must accept blame and demonstrate contrition, which isn’t one of his strongest skills.
The Hollywood strikes negatively impacted Disney, and that’s partially Iger’s fault since he was closely involved in those negotiations.
What I’m expecting is that we see changes at or near the top of Disney’s movie production food chain.
I doubt Iger announces anything tomorrow, though.
Anchoring the Streaming Business
Disney has moved away from Chapek’s previous description of the company becoming a digital business.
Executives have taken this approach because A) nobody wants to sound like Chapek right now, and B) there’s a negative stigma to the term.
Since Disney realigned its core businesses in 2021, digital streaming services have struggled mightily.
Some on Wall Street have gone so far as to describe the current state of the industry as an existential crisis.
Businesses like Paramount Global and Warner Bros. Discovery are riddled with debt and cutting corners on upcoming projects.
In the short term, these moves improve free cash flow, but they’re short-sighted in that the companies will lack new content later.
You entice subscribers to join/stay with your service via this new content.
Disney faces the same problem, as Iger has circled back to a “quality over quantity” approach.
Theoretically, that’s the right move at the moment, but it’ll come with 2024 ramifications.
Disney will only release one Marvel movie next year, and its overall film slate looks worse on paper than the 2023 batch.
However, Disney believes that it can market more efficiently when it focuses on fewer films.
Similarly, celebrities can publicize their 2024 films, something that wasn’t possible during the strike.
Honestly, Wall Street doesn’t care about any of that, though. It only worries about short-term profit.
So, Iger must persuade investors that Disney+ will meet its stated goal of profitability by the end of fiscal 2024, which technically happens on September 30th, 2024.
You can expect Iger to discuss the Hulu tile integration on Disney+ and possibly even discuss finite plans for ESPN converting to a digital service.
Speaking of which…
Mergers, Acquisitions, and Sales
A Town Hall should ostensibly involve a leader speaking to their employees about the company’s future.
With a global conglomerate like Disney, that’s not what will happen here.
Iger will start by reiterating that Disney cast members are among the finest workers in the world, which is objectively true.
Then, the CEO must pivot to an acknowledgment that his company is undergoing an unprecedented reinvention.
Specifically, the Disney employees who work in Linear Networks may not have jobs soon. Well, they may not have jobs with Disney.
The company has explored several potential sales of various cable channels and possibly even ABC.
Simultaneously, Iger and his team have explored the idea of selling part or maybe even all of ESPN to outside interests.
Iger would clearly prefer to keep ESPN, as he values live sports for its marketing potential.
Just yesterday, I saw several Disney vacation and film commercials while watching NFL football.
Still, if Apple threw, say, $50 billion at Disney for ESPN, it’d be difficult to say no to that.
Similarly, Disney may solve its current issues with content via an acquisition.
Other businesses like Paramount and Lionsgate are currently struggling and could be available to buy.
Several video game analysts are convinced that Disney might buy a publisher for its intellectual property assets.
That move makes particular sense in the wake of The Super Mario Bros. Movie’s box office triumph.
So, Wall Street wants to know whether Disney is buying, selling, or both.
Tomorrow’s Town Hall should be fascinating.
Feature Image: Washington Post illustration; Jordan Strauss/Invision/AP; iStock
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