A fairy tale falters
Former Disney CEO Bob Iger has come out of retirement to try to restore the company’s fortunes after his successor was sacked. But does he have the magic to turn it around?
Returning Disney boss Bob Iger was greeted with glee by Wall Street and Hollywood’s creative community. His 15-year tenure leading the entertainment group – which included the landmark acquisitions of Pixar, Marvel, Lucasfilm and 21st Century Fox – made the industry believe he had an almost magic touch.
But Iger’s return, coupled with the sudden sacking of his hand-picked successor, Bob Chapek, is no fairy-tale ending.
The company Iger is taking over is not the same as it was when he stepped down as CEO in early 2020. And Iger, who officially began his brief retirement at the end of 2021, faces many challenges as he attempts to restore Disney’s glory, from turning a profit on streaming, to plotting a future for sports broadcasting network ESPN, to navigating a possible recession that could reduce tourism.
Under Chapek, the entertainment giant, based in the southern Californian city of Burbank, in the United States, was dramatically reoriented around streaming during the pandemic. The way in which this was done, though, caused angst among executives and talent, dimmed morale and sacrificed huge sums of money to grow subscriptions for Disney+.
Top executives left or were shown the door. Iger has since told staff he will enact his own restructuring to put “more decision-making back in the hands of our creative teams”, which will effectively undo Chapek’s controversial 2020 reorganisation.
With his return, Iger must contend with a gloomy economic climate, continued declines in TV ratings, accelerating rates of subscription cancellation, and a stock market that has soured on the fiercely competitive streaming business. Perhaps most important and troubling is a sense that Disney’s unparalleled brand has taken a hit.
During his tenure at Disney, Chapek’s reputation suffered from incidents, including a legal battle with Scarlett Johansson over box-office bonuses, and a political melee with Florida governor Ron DeSantis over the US state’s Parental Rights in Education law, known to LGBTQ activists as “Don’t Say Gay” legislation. Initiatives to boost Disney theme park profits, such as charging fees for fast access to attractions, left guests feeling squeezed.
“It’s just a little bit of a sigh of relief that things are going to be a little bit more positive and productive from the CEO suite,” says Brian Mulberry, client portfolio manager at Chicagobased Zacks Investment Management, which holds Disney stock. “It’s a very difficult time for Bob Iger to step back in, but to be candid, I don’t know that anybody else would be better at this moment in time.”
Disney did not make executives available for comment. That no one, including Disney’s board of directors, has yet identified another executive to lead Disney is its own problem, according to analysts. Disney’s board of directors said that Iger will return to the CEO job for two years, during which he will nurture a successor.
“The board has concluded that, as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period,” said Susan Arnold, Disney’s chairwoman.
Iger himself took over from Michael Eisner in 2005 during a period of major turmoil for the company, and later delayed his retirement multiple times, passing over potential successors such as former chief operating officer Tom Staggs before settling on Chapek, a three-decade Disney veteran known to be a skilled business operator.
Disney typically promotes from within, and there are few, if any, people left who could credibly take the mantle from Iger.
One question is how Iger will unwind controversial changes that Chapek made to the company during his not quite three years at the top. In a key early move, Chapek put his mark on Disney with a restructure that concentrated power under a team led by his long-time deputy, Kareem Daniel. Daniel’s unit, known as Disney Media and Entertainment Distribution, or DMED, held enormous influence, deciding which projects would go to Disney+, Hulu, cinemas, or Disney’s broadcast and cable channels, including ABC and Freeform. That decision was supposed to accelerate the shift to streaming. But it mainly caused internal friction and resentment from leaders who felt that their autonomy was slipping away.
“Iger wasn’t in favour of the reorganisation, and [the] creatives hated it,” says Rich Greenfield, an analyst at media research firm LightShed Partners.
In one of his first acts after returning, Iger told DMED employees that the company would be restructuring again and that Daniel would be leaving. “It is my intention to restructure things in a way that honours and respects creativity as the heart and soul of who we are,” Iger wrote. “As you know, this is a time of enormous change and challenges in our industry, and our work will also focus on creating a more efficient and cost-effective structure.”
Immediately following Iger’s return, producers – who requested anonymity to preserve relationships – began calling for the reinstatement of Peter Rice, the respected and talent-friendly former Fox executive who came over to Disney as the chairman of television after the 2019 Fox acquisition, who was fired in June. Rice was one of the bosses who bristled under Chapek’s structure, and in his place, Disney elevated Rice’s former number two, Dana Walden, to the top TV role.
Neither Rice, Walden nor Daniel returned requests for comment.
One of Iger’s biggest tasks will be to assess Disney’s streaming business. Iger’s original plan for Disney+ when it launched in November 2019 was to cater to Disney fans with its well-known brands – Pixar, Disney Animation,
Star Wars and Marvel – expecting it to reach up to 90 million subscribers by financial year 2024.
As streaming surged amid the pandemic, Chapek expanded Disney+’s catalogue to include more general-audience shows, such as sitcom Black-ish and Dancing With the Stars, in the hopes of hitting much loftier targets.
Disney+ added 12.1 million subscribers during the most recent quarter, bringing its total to 164 million after less than three years. Analysts, though, worried about Disney diluting its brand.
It’s not obvious how Iger will address problems in streaming that have also dogged Disney’s rivals, as experts question whether streaming is worth the cost.
Market leader Netflix, for example, pared its spending as investors grew skittish.
Disney’s direct-to-consumer business – including Disney+, Hulu and ESPN+ – lost US$1.5 billion in the most recent fiscal quarter. In one of his final moves as CEO, Chapek emailed Disney leaders to call for cost-cutting measures, including lay-offs.
Disney+ is also raising prices and launching a version with commercials.
“Iger picked his exit time optimally because he got the credit for subscriber growth without ever having to deliver on profitability,” says Doug Creutz, an analyst at investment banker Cowen. “Now he has to deliver on profitability and that’s challenging no matter who’s in charge.”
Iger may make even more radical changes, having recently said that traditional cable and satellite TV is headed for a “precipice”.
ESPN makes money but suffers from subscription cancellation and escalating costs for sports rights. Disney has consistently rebuffed speculation that it would spin off ESPN, despite pressure from investors.
Disney has to contend with a balance sheet burdened with debt from the acquisition of entertainment assets from Rupert Murdoch’s 21st Century Fox, one of Iger’s tours de force in a career of high-profile deal making. He also inherits the quandary of what to do with Hulu, of which American telecommunications giant Comcast still owns a third.
Then there’s the matter of inflation and a possible recession reducing consumer demand. “What’s he supposed to do?” Creutz asks. “Cut costs more? Raise prices more?”
One thing Iger brings to Disney is a sense of stability. Dealing with talent egos and political quagmires requires the kind of finesse for which Iger is known. Disney fans feel a deep emotional attachment and sense of ownership that spans generations and national borders.
“Stability is a huge thing,” Mulberry says. “[Iger left] a great culture that was very positive and productive. But that’s not the culture that’s there now. Can he resuscitate that and bring it back to that type of feeling?
“If the answer is yes, and we start to see some immediate improvements in that regard, that would give us a better outlook going forward.”
Bob Iger is uniquely situated to lead the company through this pivotal period
SUSAN ARNOLD, DISNEY’S CHAIRWOMAN
Iger wasn’t in favour of the reorganisation, and [the] creatives hated it
RICH GREENFIELD, ANALYST, LIGHTSHED PARTNERS