After swift return, Iger faces long- term challenges
Robert A. Iger moved at light- speed on two fronts in his first 24 hours as Disney’s new- old CEO. He sought to restore stability — getting the core executive team working together again, exuding a patriarchal sense of security in a companywide email — while also announcing organizational and operating changes designed to “honor and respect” the company’s creative engines, its movie and television studios. So what comes next? Iger, 71, had been fully retired from the Walt Disney Co. for only 11 months. He passed the CEO job to his handpicked successor, Bob Chapek, in February 2020, but stayed on until the end of last year as a very active executive chairman. He had spent his last two years deeply focused, as he put it before he stepped away, “on the creative side of our business,” making sure “our creative pipelines are vibrant.”
But he has returned to a different Disney.
Morale has rarely been lower, people inside the company say, the result of a stock price that has fallen under $ 100 from $ 197 over the past 20 months, devastating the stock options given to some senior Disney executives as part of their compensation. During Iger’s 15 years as CEO ( 2005- 20), Disney got used to winning and winning and winning. In 2019, the company served up seven movies that each collected more than $ 1 billion at the global box office. No other studio had more than one; most had none.
Several of Iger’s most trusted lieutenants and enforcers have retired, including Alan N. Braverman, Disney’s longtime general counsel, and Zenia B. Mucha, who spent 19 years as Disney’s chief communications officer and its top brand protector. Disney is loaded with debt — more than $ 45 billion — because of the pandemic and because of the $ 71.3 billion acquisition of 21st Century Fox assets in 2019, making it hard for Iger to pursue new acquisitions. ( Some analysts think Disney would be well suited by adding a gaming company such as Roblox to its portfolio.)
Hollywood, too, is not the same.
When Iger was last in charge at Disney, media investors were hyperfocused on streaming subscriptions: Sell as many as possible around the world as fast as possible, and worry about profitability later. That mindset abruptly changed in April when Netflix said it lost more subscribers than it signed up in the first three months of the year, reversing a decade of steady growth.
Investors now want to see old- fashioned profit in streaming. Chapek, who was fired Nov. 20, and Disney’s CFO, Christine M. Mccarthy, repeatedly promised that the Disney+ streaming service would be profitable by 2024. Wall Street and even some Disney executives remained skeptical.
Unlike most of its rival media conglomerates, Disney can rely on its theme park business for profit and growth — unless a recession hits. But cable television, long the safety net for these companies with its steady growth through rising payments from cable suppliers, has been dying at a faster rate than expected.
All of which leaves Iger in a difficult position.
“He cannot simply continue on the path he laid out before he left, as the landscape has changed materially,” Richard Greenfield, a founder of the Lightshed Partners research firm, wrote with two colleagues in a client note Tuesday.
Disney declined to comment.
Chapek was tossed from the proverbial castle tower in part because senior leaders at the company, including Mccarthy, let it be known to the board of directors that they no longer believed he could lead Disney through its problems. Those challenges start with streaming but are perhaps far greater than most outsiders realize.
And the problems can’t all be laid at Chapek’s feet.
One area that seems to need intensive focus is animation, which Iger and others have described as the heart of Disney — the content that powers everything else, including theme park attractions and consumer products. Pixar’s last movie, “Lightyear,” bombed in theaters even though it was connected to the blockbuster “Toy Story” franchise.
On Wednesday, Walt Disney Animation Studios, a separate division, released “Strange World,” centered on a farmer on an alien planet who is tasked with finding a solution to dying crops. “Strange World” was expected to take in about $ 35 million over the fiveday Thanksgiving holiday in the United States, which would be a terrible result for
a film that cost $ 180 million to make and tens of millions more to market.
Notably, these are among the first animated films that have come off the Disney assembly line without creative input from John Lasseter, the Pixar founder who resigned from Disney in 2018 after complaints about unwanted workplace touching.
Disney’s current streaming strategy was in many ways established by Iger: Disney would build not one, not two but three streaming services. Disney+ would be aimed at families and core fans of Disney franchises such as “Star Wars,” “The Avengers” and “The Simpsons.” Hulu would focus on broader entertainment offerings and more risque programming. ESPN+ would carry live sports.
Iger and his executive team will have to decide whether to continue with that plan or shift gears. His return also gives Disney an
opportunity to reexamine Disney+ profitability and subscriber targets.
“Do they envision a world with just one ‘ everything’ Disney service, combining Disney+, Hulu and ESPN+?” Greenfield and his colleagues asked.
ESPN and Disney’s broader portfolio of cable networks ( Disney Channel, FX, Freeform, National Geographic, Disney Junior) raises another complex problem. More people are canceling cable hookups, resulting in lower carriage fees and advertising revenue for companies, such as Disney, that program cable networks. But costs keep rising, especially at ESPN, which has been caught in a frenzy for sports TV rights, with new bidders including Amazon and Apple joining the fray.
“We would expect deep cost- cutting at ESPN, which should include a review of all the upcoming sports
rights to more adroitly adapt to these new times,” Michael Nathanson, a leading media analyst, told his clients Monday. Should ESPN, for instance, sit out negotiations for a renewal of its package of National Basketball Association rights? It currently pays about $ 1.3 billion per year for them, according to Greenfield.
Disney’s theme parks in Florida and California have bounced back nicely from the pandemic, when they were closed for long periods. Chapek has been widely credited as a savvy operator of the theme park division, which he ran before ascending to CEO.
But the parks, too, have their problems. Chapek and his team leaned heavily on price increases for admission, food, merchandise, parking, hotel rooms and line- shortening perks to offset spending at Disney+ and other streaming initiatives. The price increases have resulted in a cascade of negative news coverage and may not be sustainable, analysts worry, if the U. S. economy continues to worsen.
Shanghai Disneyland, the founding of which in 2016 was one of Iger’s signature achievements, has been opened and closed and opened and closed by Chinese authorities trying to control the spread of coronavirus. Hong Kong Disneyland has also struggled. Complicating operations for Disney in China is the frosty relationship between the Chinese and American governments.
There’s more. Matters that will require Iger’s attention also include an activist hedge fund, Trian, led by Nelson Peltz, that has accumulated a large stake in Disney and plans to push for a board seat as part of an operational shake- up. Hollywood is headed toward rancorous contract negotiations with its major labor unions, and most studios believe that a springtime strike by the Writers Guild of America is likely.
And there is the not- solittle matter of identifying and grooming another successor, which Disney’s board said was part of Iger’s mandate — and by the end of his contract in two years.
In an email to Disney’s 190,000 employees, Iger struck an upbeat tone about what lay ahead, even though “these times certainly remain quite challenging.”
“I am an optimist,” he wrote, “and if I learned one thing from my years at Disney, it is that even in the face of uncertainty — perhaps especially in the face of uncertainty — our employees and cast members achieve the impossible.”