From Chapek to Iger, and Disney’s Road Ahead

 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?

 

__________

 

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 Disney, Free Enterprise in Three Minutes, and the PRESS CLUB C Podcast.

6 Big Reasons Why the DeSantis Attack on Disney is a Disturbing and Costly Political Mess

 by Ray Keating

Commentary/Analysis

DisneyBizJournal.com

April 27, 2022

 

Hold on a minute. I’m confused. I thought Republicans were against debt relief. For good measure, I was under the impression that Florida Governor Ron DeSantis, a Republican, was less than thrilled with the Walt Disney Company.

 

But if that’s all true, then why have DeSantis and Florida Republican state legislators at least opened the door to massive debt relief for Disney, as well as a possible big tax cut for the House of Mouse? Hmmm, does this mean that DeSantis secretly loves Disney?

 

Well, let’s not get carried away. 

In reality, what DeSantis has done is lash out at the Walt Disney Company in the hopes of stirring up and ingratiating himself with parts of the Republican Party base. However, being governor of the third largest state in the nation means – or should mean – that you don’t irresponsibly treat businesses, residents and the Florida economy as your personal political playthings. But then again, DeSantis is trying to position himself as the next Donald Trump, so…

As a quick reminder, DeSantis and Disney disagreed on Florida’s House Bill 1557. And yes, it was incredibly dumb for Disney to stake out ground on this issue when it has nothing to do with its business. But Disney CEO Bob Chapek caved to some vocal activists in his company, and the result has been a mess for the company. (See DisneyBizJournal’s previous analyses on this here, here and here.) 

 

However, even if one disagrees with Disney’s decision on this – which I strongly do, by the way – that doesn’t in turn mean that one should support the charge led by DeSantis to use legislation to punish a company that he disagrees with on an issue. Nonetheless, that’s exactly what DeSantis along with Republicans in the Florida state legislature did when passing legislation that will dissolve Walt Disney World’s Reedy Creek Improvement District as of June 1, 2023.

 

Reedy Creek was created in 1967 and allowed Disney to effectively self-govern the 25,000 acres the company purchased to create Walt Disney World. That means that Disney, through the District, controls essential services like infrastructure, electricity, water, sewage, zoning, solid waste and recycling, building codes and approvals, and a fire department. It’s a unique set up pertaining to a unique situation. Reedy Creek covers two towns, Bay Lake and Lake Buena Vista, with about 50 residents today who own the land and actually elect their own mayors and city councils. These residents obviously are Disney employees.

So, let’s review the rather lengthy list of problems with this egregious act by DeSantis and GOP state legislators.

 

First, government punishing a company for the stance it takes on a political issue flies directly in the face of the First Amendment. You know: “Congress shall make no law … abridging the freedom of speech…” Indeed, this act is a deeply disturbing act by government that should outrage everyone, including all of those Republicans who used to talk about how much they loved freedom and abhorred big, abusive government.

 

Second, the U.S. Constitution also prohibits bills of attainder (Article I, Section 9, Clause 3). That is, legislative acts cannot be used to punish a particular individual or entity. As explained in the case United States v. Lovett, legislative acts are prohibited that “no matter what their form … apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial…” Again, I remember when Republicans at least spoke about the need for separation of powers. Of course, the response is that this bill covers a few other districts created before 1968 as well. That, of course, is a farce, as the intent has been made clear by the governor and state lawmakers that this legislation is meant to punish Disney.

Third, contracts matter, but the law dissolving the Reedy Creek District ignores the binding contract that the state has with holders of Reedy Creek bonds. As explained in an analysis at Bloomberg Law:

 

In authorizing Reedy Creek to issue bonds, the Florida legislature included a remarkable statement—included in Reedy Creek’s bond offerings—regarding its own promise to bondholders: “The State of Florida pledges to the holders of any bonds issued under this Act that it will not limit or alter the rights of the District to own, acquire, construct, reconstruct, improve, maintain, operate or furnish the projects or to levy and collect the taxes, assessments, rentals, rates, fees, tolls, fares and other charges provided for herein … until all such bonds together with interest thereon, and all costs and expenses in connection with any action or proceeding by or on behalf of such holders, are fully met and discharged.”

 

As noted later in the Bloomberg piece:

 

By dissolving Reedy Creek, the legislature essentially rewrote the promises made in the district’s bond offerings. Instead of bonds backed by a special district with the power to levy up to 30 mills in taxes, the property tax bonds will be backed jointly by two governments that can only generate a maximum of 10 mills in taxes. Instead of a unified utility system with special powers to charge various fees, supported by special taxing powers, utility revenue bonds will be jointly managed by two counties subject to additional taxing and spending restrictions.

      Both the U.S. and Florida constitutions place strict limitations on the government’s ability to impair its own contracts. Under the U.S. Constitution, a state can only impair an existing contract if the impairment is reasonable and necessary to serve an important government purpose. As early as 1866, the U.S. Supreme Court held that once a local government issues a bond based on an authorized taxing power, the state is contract-bound and cannot eliminate the taxing power supporting the bond. The Florida Constitution provides even greater protection from impairment of contracts.

 

Fourth, this bondholder language points to a host of problems regarding bonds and taxes. As the Bloomberg piece, as well as other analyses, points out, “The bill dissolving Reedy Creek doesn’t say what should happen to these debts, but another statute does: By default, the local general-purpose government—the county—assumes the district’s debt, along with all of its assets. This means that theoretically, Orange and Osceola counties will inherit upward of $1 billion in bond debt.” Other reports put the amount of Reedy Creek debt higher.

 

Indeed, among the unknowns is the distinct possibility of hitting taxpayers in two local counties with big tax increases. 

 

Disney already pays both sales and property taxes to localities, such as counties and school districts. In fact, CNBC reported, “Public records show Disney is the largest taxpayer in central Florida, paying over $280 million in property taxes to the counties between 2015 and 2020.” Also, as noted, Disney effectively pays taxes to itself with the Reedy Creek District, with Reedy Creek collecting $164 million annually from Disney to pay for services like road maintenance, utilities, fire protection, and so on.

 

GOP state lawmakers claim that Reedy Creek taxes will get shifted to the counties. But Disney taxes itself at a much higher property tax rate than is allowed by the state constitution. In fact, three times higher, as noted above. So, if Reedy Creek were dissolved, a massive amount of costs would be shifted to the counties, but Disney would pay less than it is now in taxes. CNBC noted:

 

Tax experts say that in order for the counties to collect additional revenue from Disney to pay the bond debt, the counties would have to create a new special tax district of their own. Even if they created a new special “Disney” tax district, the tax rate would be capped below that of the current district rate, leaving Orange and Osceola counties with Reedy Creek’s debt service but with less revenue to pay it off.

 

For good measure, government has little ability to control costs, so the bill to local taxpayers promises to be rather substantial, though, again, no formal analysis has been done at this point.

 

Plus, if the dissolving of Reedy Creek goes this route, bondholders no doubt will sue, and that will prove to be a costly legal battle paid for by taxpayers in service of Governor DeSantis’ political desires.

 

Hmmm, remember when the top issue for Republicans was tax relief?

Fifth, the legislation was created in haphazard fashion, to say the least. At the last minute, it was crammed into a special session. Legislators got to look at the bill for two days before it was rammed through without any substantive analysis as to the effects of the legislation, such as on taxpayers and the economy, nor does it spell out how the dissolution would actually work. Indeed, no one seems to have a clue as to how any of this would work. DeSantis and legislators promise to get around to that down the road. According to the Orlando Sentinel, “Not even the bill’s sponsors – Sen. Jennifer Bradley, R-Fleming Island, and Rep. Randy Fine, R-Palm Bay – could provide the intricate details of how Reedy Creek would be dissolved, saying the matter will be hammered out in the next year.” Sure, right, let’s not spoil this political opportunity to pander with potentially messy details. So much for slowing the mechanism of government to consider the full implications.

 

Sixth, there’s also the fact that state law requires a voter referendum by residents or land owners in a special district in order to dissolve that district. Obviously, Disney isn’t going to vote for that. But according to the Sentinel, Republican lawmakers claim that the new law trumps the old law. That is in dispute, and would lead to another costly legal battle.

 

Of course, the key benefit that the Reedy Creek District offers Disney is to avoid costly meddling and delays that come with being regulated by local governments. Walt Disney experienced those problems firsthand in California, and sought to avoid such an outcome in Florida. And if the Reedy Creek district actually is dissolved, Disney not only will face costly regulations that create delays and raise costs, but also local governments running various services that Disney has been doing. Disney has operated such services efficiently, you know, like a business does if it wants to succeed. When was the last time you hit a pothole in Disney World? Turning such operations over to government would mean diminished quality of service, as government is wont to do, along with increased dollar costs.

 

One might think that Republicans, who used to care about the economy, would be trying to figure out how they can expand the opportunity for more businesses to be able to do what Disney has in terms of more efficiently running various services, rather than punishing the company who has shown that, yes, business can do most things better than government. And again, with Disney doing the work and paying for it, taxpayers don’t get hit with the bill.

Geez, it’s almost like Governor DeSantis and his fellow Republicans in the state legislature didn’t really think this through, or they didn’t really care to think about anything other than political pandering. Go figure.

 

As for Disney, company corporate affairs officer Geoff Morrell was quoted by the Hollywood Reporter back on March 2, 2022, saying: 

 

“Whatever Bob’s personal politics are, he’s not an activist and does not bring any partisan agenda to work. He sees himself first and foremost as the custodian of a unifying brand that for nearly a century has been bringing people together, and he is determined that Disney remain a place where everyone is treated with dignity and respect… He believes the best way we can help create a more inclusive world is through the inspiring content we produce, the welcoming culture we create and the diverse community organizations we support.” 

 

That’s spot on correct. Chapek and Disney (and its shareholders) would have fared much better in this situation and would be better positioned going forward when other hot-button topics inevitably crop up with activists trying to pressure the company, if they had stuck with what Morrell explained. But Chapek caved, and the company has been dragged into the muck of politics in an era when the hard Left and populist Right thrive on division and controversy.

 

__________

 

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant 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?

 

Two great ways to pre-order Cathedral: An Alliance of Saint Michael Novel, which is Ray’s sixteenth work of fiction, and 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.  

 

Get all of Ray Keating Pastor Stephen Grant thrillers and mysteries in paperback and for the Kindle at Amazon.com and signed books at www.RayKeatingOnline.com. 

 

Get more out of the rest of 2022 with The Disney Planner 2022: The TO DO List Solution! It combines a simple, powerful system for getting things done with encouragement and fun for Disney fans, including those who love Mickey, Marvel, Star Wars, Indiana Jones, Pixar, princesses and more. Also, “The Disney Planner 2022: The TO DO List Solution” comes with a handy spiral binding for easy use. It’s on sale and shipping is always free!

 

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

DeSantis vs. Disney: Political Theater

 by Ray Keating

Commentary/Analysis

DisneyBizJournal.com

April 20, 2022

 

If you’re looking for principle and clearheaded thinking in politics, good luck with that. This is not an era of serious, never mind civil, discussion and debate of important issues. Instead, it’s a time for ginning up the base and pandering to activists, whether on the hard Left or the populist Right, often via nut-picking.

That’s the lens through which the political battle between Florida Governor Ron DeSantis (R) and the Walt Disney Company must be viewed. 

 

DeSantis wants to be president, and Disney foolishly handed him a political club to hit the company over the head with when it pandered to left-wing activists on a hot, controversial political topic that has absolutely nothing to do with the company’s business. (See my piece on the issue of company’s delving into politics, including Florida’s Parental Rights in Education Act, and Milton Friedman’s sage analysis on the issue of corporate social responsibility here.)

 

Will Disney learn a lesson about playing politics? Who knows? Hollywood is drenched in tone-deaf, left-wing politics these days. But the company certainly has gone radio silent recently on this particular issue after pressing matters initially.

 

In the meantime, DeSantis is playing this for all its worth. On Tuesday (April 19), he announced that he was adding to the agenda of a Florida special state legislative session. Not only would lawmakers be working on a new congressional map, but he also called on them to a take up a review of independent special districts set up prior to November 5, 1968. That, of course, means the Reedy Creek Improvement District, which was set up by the legislature in 1967 and granted the Walt Disney Company control over its own governmental entity covering the Walt Disney World area.

 

Part of DeSantis’ announcement also included a call to have legislators look at, according to the Orlando Sentinel, eliminating “the carveout Disney received from the Legislature for the so-called Big Tech law that would allow people to sue social media companies such as Facebook or Twitter if they are censored.” This is another issue rooted in partisan politics, and not sound policy or economics. A federal court has tossed out the law, but that is being appealed. 

 

Each bill cleared committees on April 19.

 

Apparently, Governor DeSantis has suddenly found religion on the matter of special deals for large businesses. Or has he? In reality, of course, this isn’t about special deals for corporations. (Incidentally, as an economist, I’ve spent a good chunk of my career arguing against all forms of corporate welfare.) 

 

All of this is about DeSantis seeking to score political points with the Republican base by attacking Disney.

 

By the way, what would be the effect if Disney’s Reedy Creek district were voted out of existence? Well, no one seems to have thought much about that apparently in the governor’s office. I’m just shocked.

 

One state legislator raised some reasonable problems with the Sentinel:

 

State Sen. Linda Stewart, D-Orlando, said the impact on Orange and Osceola counties could be immense. “Reedy Creek has been doing everything,” Stewart said. “The fire department, they’ve been paying for all that infrastructure. And if they take Reedy Creek away, that responsibility is going to go to a government. And the government’s not going to get reimbursed for what they have to pick up and take care of.”

 

Indeed, eliminating the Reedy Creek district would result in higher taxes for local taxpayers. Um, is this a Republican plan?

 

For good measure, according to the Sentinel report, the state lacks the authority to abolish special districts, as that could require a majority vote of the residents or land owners in the district. And that would be Disney.

 

Hmmm. This appears to be more about political theater than anything else. Go figure.

 

By the way, DeSantis made his announcement about Disney’s special district at The Villages, which benefits from its own special district. But The Villages happens to be home of many DeSantis’ political supporters, so…

 

__________

 

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant 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?

 

Two great ways to pre-order Cathedral: An Alliance of Saint Michael Novel, which is Ray’s sixteenth work of fiction, and the first in the Alliance of Saint Michael series. Signed paperbacks at 

https://raykeatingonline.com/products/cathedral and/or the Kindle edition at 

https://www.amazon.com/dp/B09WYW2Q2V

 

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 at https://raykeatingonline.com/products/weeklyeconomist and/or the Kindle edition at https://www.amazon.com/dp/B09WKN81RG.

 

Get more out of 2022 with The Disney Planner 2022: The TO DO List Solution! It combines a simple, powerful system for getting things done with encouragement and fun for Disney fans, including those who love Mickey, Marvel, Star Wars, Indiana Jones, Pixar, princesses and more. Also, “The Disney Planner 2022: The TO DO List Solution” comes with a handy spiral binding for easy use. 

 

Keating has three new books out. Vatican Shadows: A Pastor Stephen Grant Novel is the 13^th thriller/mystery in the Pastor Stephen Grant series. Get the paperback or Kindle edition at Amazon, or signed books at www.raykeatingonline.com. Past Lives: A Pastor Stephen Grant Short Story is the 14th book in the series. Again, get the paperback or Kindle edition at Amazon, or signed book at www.raykeatingonline.com. And order the 15th book in the series What’s Lost? A Pastor Stephen Grant Short Story – grab it at Amazon.com or signed editions at www.raykeatingonline.com. 

 

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