In his first public comments since he began his second stint as Disney chief executive, Bob Iger reminded investors that he had led the company through “two important transformations”.
The first, which started 15 years ago, is remembered for its game-changing acquisitions of Disney Pixar, Marvel and Lucasfilm. The second transformation sets the stage for Disney’s high-stakes battle with Netflix in the streaming war.
Now, Iger told investors on an earnings call on Wednesday, it’s time for a third transformation. But if the first two are bold acquisitions or enter cutting-edge new business, this shift sounds more defensive.
His main mission now is to put Disney’s streaming businesses — Disney Plus, Hulu and ESPN Plus — on “a path to sustained growth and profitability while also reducing costs,” he said. The move will help the company “weather disruptions in the future, increased competition and global economic challenges”.
Wall Street has been waiting for Iger’s comments, a reflection of his status as one of the most respected chief executives in the US. “When he took over from Michael Eisner [in 2005] he acted decisively and made very quick moves that generated profits and won a lot of awards,” said Jessica Reif Ehrlich, an analyst at Bank of America, in an interview before the call. “It’s important for him to message where he is now.”
It’s a difficult message. Disney said it would cut 7,000 jobs, or about 3 percent of the company’s workforce, as part of a restructuring designed to save $5.5 billion over the next few years. About $3bn will come from content spending cuts – which exploded as the company built its Disney Plus business – while another $2.5bn will come from cutting selling, general and administrative costs.
Investors, who lost patience last year with the expensive land grab phase of the streaming war, are happy to hear that the business will be profitable by the end of next year. Disney shares rose 6 percent in after-hours trading in New York.
“Iger has always been very honest with investors,” said Rich Greenfield, an analyst at LightShed Partners. “It will be – continue to be – a leaner company.”
Iger is hardly the only Hollywood executive looking to rein in costs after the over-the-top streaming war, which left all combatants saving Netflix’s blood-red ink. Warner Bros. Discovery has completed a brutal round of cost-cutting, while NBCUniversal and Paramount are also nursing streaming losses.
A $1.5bn loss in Disney’s streaming business in the previous quarter led to the company’s board finally losing patience with Bob Chapek, who was fired in November after 33 months as chief executive. Iger has been quick to dismantle the organizational structure that Chapek had put in place that stripped studio leaders of much of their traditional authority to determine budgets, marketing plans and distribution strategies.
On Wednesday, he announced a new structure that will give authority back to Disney’s “creative leader,” who will now be responsible for the financial performance of the content it produces.
“Our creative team will determine what content to do, how to distribute and sell it, and how to market it,” Iger said. “I always believe that the best way to encourage good creativity is to make sure that the people who manage the creative process feel empowered.”
The new structure splits the company into three units – Disney Entertainment, Theme Parks and ESPN’s sports TV and streaming group – surprising many on Wall Street who have promoted the idea that ESPN should be spun off or sold. After Disney’s cash cow, ESPN has been hurt by cable-cutting, but Iger insists there is still an important place in the company. He added that the idea of eliminating ESPN had been discussed in Chapek and rejected.
Iger was tight-lipped about another source of ongoing speculation: the fate of streaming service Hulu, which has 48 million subscribers and is known for critically acclaimed shows such as Tale of Prameswari, Just Murder in the Building, The Bear and The Breakup. Comcast has a 33 percent stake in Hulu that Disney could buy as early as 2024, though some analysts say Comcast could also be a potential buyer.
In his remarks, Iger said that Disney will focus on its core brands and franchises, such as consistent hitmakers Marvel, Pixar and Star Wars, which tend to generate high returns. But general entertainment content, which could be interpreted as a type of Hulu-specific programming, will be “aggressively” curated, Iger said.
“Hulu is not looking at earnings calls beyond a reduced emphasis on general entertainment,” said Greenfield, whose firm published a report last week titled Is Disney Preparing to Shop Hulu?
He added: “It makes me feel like it’s not a core business like it is now.”
Looming over Iger’s return to Disney has been campaigned by activist Nelson Peltz, who is seeking a seat on the company’s board. Peltz has criticized Iger’s 2019 acquisition of 20th Century Fox from Rupert Murdoch and called on Disney to restore its dividend, which was halted during the coronavirus pandemic. Disney asked shareholders to reject Peltz’s push when shareholders hold their annual meeting on April 3.
On Wednesday, Iger took up one of Peltz’s main arguments, saying he plans to ask the board to consider restarting the dividend at a low level later this year and gradually increasing it. “Our cost-cutting initiatives will work,” Iger said.
Asked to comment on Iger’s plans, Peltz’s Trian Partners said: “We’re glad Disney is listening.”