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Sunday, November 13, 2022

Recent Disney News in Perspective: Earnings, the Cramer Rant, and the Chapek Cost Memo

 by Ray Keating



November 13, 2022


The Walt Disney Company was in the news a great deal last week, and none of it was the type of news that pleases shareholders. At the same time, the realities, reports and reactions need to be put into proper perspective.

First, there was Disney’s disappointing earnings announcement for the fourth quarter 2022. The bottom line is that both earnings and revenues fell short of market expectations, and the Disney stock price was punished as a result. 


However, assorted talking heads and analysts focused on the losses at Disney+. That’s interesting because there really wasn’t anything all that new there. Disney noted that the fourth quarter loss for Disney+ would be the peak loss, followed by declining shortfalls, and then reaching profitability at some point in 2024. That all lined up with what the company reported previously. The only real difference was a warning that unforeseen economic woes could affect this scenario. That’s just common sense, and should have surprised no one.


Second, CNBC’s Jim Cramer called for the firing of Disney CEO Bob Chapek. Cramer has become a cartoonish character on a financial news network. So, do what you will with his Chapek call. At the same time, however, Cramer brings attention to an issue that is increasingly under serious consideration. Chapek obviously was dealt a brutal hand as former Disney CEO Bob Iger suddenly retired just before COVID-19 struck in the U.S. Indeed, though it has not received much attention, given Iger’s on-again-off-again retirement dance before that, one has to wonder if he had some vague idea of what was coming, given what already had been going on COVID-related beyond the U.S. at that point, and simply didn’t want to be in the CEO seat to deal with it. Having said all of this, two years and nine months into Chapek’s reign, it’s hard to find anything to give him a thumbs-up on as time passes. 

Most glaring, the CEO of Disney requires a public touch and a creative vision that do not seem to be in Chapek’s skillset.


Third, and finally, there’s the Chapek costs memo that was widely reported on on November 11. Let’s put aside the hyperbole shooting around the internet, and look at five key points that are actually in the memo that Chapek sent to top management.


• “I have established a cost structure taskforce of executive officers: our CFO, Christine McCarthy and General Counsel, Horacio Gutierrez. Along with me, this team will make the critical big picture decisions necessary to achieve our objectives.”


• “First, we have undertaken a rigorous review of the company’s content and marketing spending working with our content leaders and their teams. While we will not sacrifice quality or the strength of our unrivaled synergy machine, we must ensure our investments are both efficient and come with tangible benefits to both audiences and the company.”


• “Second, we are limiting headcount additions through a targeted hiring freeze. Hiring for the small subset of the most critical, business-driving positions will continue, but all other roles are on hold.”


• “Third, we are reviewing our SG&A [i.e., selling, general and administrative] costs and have determined that there is room for improved efficiency—as well as an opportunity to transform the organization to be more nimble. The taskforce will drive this work in partnership with segment teams to achieve both savings and organizational enhancements. As we work through this evaluation process, we will look at every avenue of operations and labor to find savings, and we do anticipate some staff reductions as part of this review.”


• “Our transformation is designed to ensure we thrive not just today, but well into the future—and you will hear more from our taskforce in the weeks and months ahead. I am fully aware this will be a difficult process for many of you and your teams. We are going to have to make tough and uncomfortable decisions. But that is just what leadership requires, and I thank you in advance for stepping up during this important time.”


These agenda items are far from what’s been said about the memo online. In fact, this is pretty standard stuff for large companies. 


No matter how good the management system, the sheer size of a company like Disney, for example, with some 190,000 employees, requires periodic evaluations of costs, and reining them in. Add in a poor economy – in particular, the current stagflation, that is, high inflation combined with recession or slow growth, and future uncertainties – and the reasons for such a review mount. 


At the same time, the question whenever such an endeavor is undertaken is: How will this affect the quality of the product? Chapek is right that such an effort should make the company “more efficient and nimble,” and “not sacrifice quality.” But there’s more. Quality and innovation must continue, even as costs are being evaluated and reduced. That will be critical for streaming, the parks, resorts, the cruise line, and so on. 


Make no mistake, creativity and innovation tend to thrive at smaller, entrepreneurial firms, while these critical activities become bigger and bigger challenges for large, long-established businesses. At nearly 100 years old, Disney has earned praise for doing so throughout much of its existence. But there have been times when creativity and innovation suffered at Disney, and there are no guarantees going forward.


Once again, serious questions and doubts now stand out as to whether or not Bob Chapek is up for handling all of this. Namely, is Chapek the right person to rein in costs while spurring creativity and innovation, and improving quality? Well, we know what Jim Cramer thinks.




Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, and the Alliance of Saint Michael novels; and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.com.


The views expressed here are his own – after all, no one else should be held responsible for this stuff, right? Also, Keating is a Disney shareholder.


Ray Keating is the author of the Pastor Stephen Grant thrillers and mysteries. Just published is Persecution: A Pastor Stephen Grant Novel. Keating says, “I think Persecution might be the most action-packed of any of the Pastor Stephen Grant books so far.”

Signed books at https://raykeatingonline.com/products/persecution  

Kindle edition at https://www.amazon.com/dp/B0BHHJNNB4


Two great ways to order Cathedral: An Alliance of Saint Michael Novel, which is the first in the Alliance of Saint Michael series. Signed paperbacks here and the Kindle edition here


Two great ways to order Ray Keating’s new nonfiction book – The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist. Signed paperbacks here, and paperbacks, hardcovers and Kindle editions here.  


Also, check out Ray’s podcasts – the Daily Dose of DisneyFree Enterprise in Three Minutes, and the PRESS CLUB C Podcast.

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