by Ray Keating
Analysis
DisneyBizJournal.com
November 30, 2022
More than a week after the surprise move of the Disney board in firing Bob Chapek as CEO, and bringing back Bob Iger, a great deal of ink, as we used to say in the newspaper business, has been spilled on what Iger and Disney now face.
Reviewing a host of reporting by, for example, The Wall Street Journal, The New York Times, CNBC, The Hollywood Reporter, and the Orlando Sentinel, there are some points worth noting and a few questions to ponder. However, there also seems to be a firm-grasp-of-the-obvious running through many of these reports.
Profits? What a Crazy Idea
One of the big firm-grasp-of-the-obvious points being repeated is that Iger will have to figure out how to make the Disney streaming services profitable, while also not undercutting, or accelerating the decline of, television and movie theater revenues and profits. Well, yeah. We’ve known this for a while, and Disney isn’t the only company dealing with this challenge.
Part of that story also is supposedly switching the emphasis in streaming from increasing subscriptions to moving from losses to profitability. Again, this has been the discussion since Disney+ was first launched, and the point long has been that Disney+ would move to profitability sometime in 2024. Iger will now have his say as to how to get that done.
As for theme parks, The Wall Street Journal served up a report noting that the parks have been a profit generator post-pandemic, but that there are investor fears that profit margins might be shrinking, as market expectations were missed in the most recent earnings announcement. Profit margin issues aren’t surprising given inflation, the sluggish economy, and the fears of recession. The questions come when trying to figure out how much recent Disney price increases might contribute to margin problems looking ahead if guests react negatively to those price hikes. Add into these unknowns the fact that park profits have served as offsets to streaming losses.
For good measure, Iger apparently is not changing Chapek’s announced hiring freeze and focus on cost cutting. Again, that’s not surprising given the economic climate.
Creative Questions
On the movies-television-streaming front, there’s been a great deal of talk about how Iger disagreed with Chapek’s distribution structure, whereby Chapek had units such as Disney Animation and Pixar make production decisions, while the distribution strategies would be centralized with the Disney Media and Entertainment Distribution division. That apparently is being undone by Iger. Whether that makes sense or not is open for debate.
But bigger issues arguably are rumbling in the distance, in particular, concerns about the quality of the creatives at Disney these days. For example, Lightyear and Strange World effectively have bombed. Among questions swirling: Is quality storytelling being sacrificed for a variety of political preferences? To the degree that might be the case, there’s no evidence in Iger’s record or in his latest statements that he even sees any such problems.
In addition, is Marvel’s spotty record in recent times the result of a system that resists bringing in well-established, top-notch directors, for example? Sam Raimi at the helm of Doctor Strange in the Multiverse of Madness was a rarity at Marvel these days. And on the Star Wars front, it seems like a complete crapshoot as to what new projects will look like from a quality standpoint, and how audiences will react. The lackluster response to the well-done Andor on Disney+ is a puzzle that needs to be solved.
And if there is a problem on the creative front, is Iger the man to deal with it given that his final stretch before leaving the company was as executive chairman focused on, as he put it, “the creative side of our business”?
Dealing with Politics
Iger has explicit political issues to deal with as well. The Walt Disney World Reedy Creek controversy is a big unknown for Disney, and Iger doesn’t seem to be up-to-speed on that yet. The Hollywood Reporter noted Iger’s recent response to the situation: “‘I had no idea what its ramifications are in terms of the business itself,’ Iger said of the move to shutter Reedy Creek, adding that he needs to learn more. ‘The state of Florida has been very important to us for a long time, and we have been very important to the state of Florida.’”
As for political controversy, it was noted in the Reporter story: “‘Do I like the company being embroiled in controversy? Of course not,’ he added, noting that ‘to the extent that I can quiet things down,’ he will try to do so.”
But there’s more. Disney has two parks in China – Shanghai and Hong Kong – and China is a communist dictatorship increasingly immersed in major controversies, from harsh treatment of its own people to threats to others, such as Taiwan.
Successor, Again
Looking further down the road, Iger has returned as a kind of interim CEO for two years, and one of his key mandates is to find the right successor. He didn’t do too well the last time with that task. We’ll see if he has a new way of thinking this time around.
Iger to Chapek: Why Now?
Amongst all of the reporting that I’ve read about Iger replacing Chapek, one issue has nagged at me. The following small excerpt, pretty much buried in a Wall Street Journal story, raises a warning sign in my mind, especially given the speed at which this all happened:
“Disney is moving some shows that were supposed to be Disney+ originals and air them first on other networks including the Disney Channel, people familiar with the matter said. By doing so, the costs of production and marketing of the shows — which included mystery show ‘The Mysterious Benedict Society’ and medical drama ‘Doogie Kameāloha, M.D.’ — would be shifted away from the streaming service, making its financial performance look better, they said. Ms. [Disney CFO Christine] McCarthy was concerned about this strategy, the people said.”
Hmmm. If other decisions by Chapek along these lines come to light, we might have an even clearer view as to why Bob Chapek got the boot, paving the way for Bob Iger’s return.
Disney Dealing with Same Issues Other Companies Are
Finally, while Chapek had to deal with a pandemic when he took the CEO reins, now Iger faces stagflation and economic uncertainty as he retakes those reins. That’s a fundamental challenge for CEOs across industries. Disney is not immune, and amidst questions about technology and streaming, this is not a new challenge. Like other CEOs, Iger will need to do the grand balancing act of maintaining profitability, cutting costs, and continuing to invest and innovate in a tough economic climate.
Iger’s reputation already has taken a hit with the failure of his handpicked successor. Now, he’ll need to navigate rough economic waters, keep customers and shareholders happy, and get the right person to be Disney’s next CEO. Just another day at the office?
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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.”
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