Bob Iger returned to the throne that he had only briefly vacated in dramatic fashion on Wednesday, presiding over his first quarterly earnings report since coming back as Disney’s CEO. But the once and present chief made it clear to analysts, during a conference call on the company’s fiscal first quarter earnings, that he was confronting a markedly different Magic Kingdom.
The media giant’s business that is being reshaped in response to tectonic shifts in consumption and distribution. But it’s also an industry that is struggling to find a way to make those new models pay off at the same level of profitability that broadcast television, cable and theatrical movies once did.
“Times have changed,” Iger admitted during an hour-long earnings presentation. “It’s gotten more competitive, the forces of disruption have only gotten greater and there are certain things as a residual of COVID that have gotten tougher from a macro economic perspective.”
But, Iger cautioned, Disney’s North Star remains the storytellers who have helped make its entertainment empire the envy of Hollywood, one that extends from Star Wars to Marvel to Mickey Mouse.
“We’re still a company that is focused on creativity in its highest form,” he said.
Investors had celebrated Iger’s surprise return when he took the CEO reins back from Bob Chapek last November, ousting his gaffe-prone successor turned predecessor. But Wednesday’s earnings call wasn’t exactly a triumphant return (though every single analyst and CFO Christine McCarthy seemed positively ebullient to have Iger back behind the wheel). It was a much more sober-minded Iger who took listeners through the existential challenges that Disney and its big media brethren face, proposing tough solutions as it looks to pay down debt amassed from a torrid period of M&A and a massive investment in streaming. His goal, he made clear, is to get Disney’s fiscal house in order. And that means cuts (Disney will shed 7,000 jobs or 3% of its workforce), along with a new emphasis on making money as opposed to just adding Disney+ customers. That new frugality will extend to the movies and shows that Disney creates.
“We are going to take a really hard look at the cost for everything that we make both across television and film because things in a very competitive world have just simply got more expensive,” Iger said.
“We want the quality on the screen, but we have to look at what that costs us,” he added at another point. Iger also suggested that Disney had spent too much money on advertising as it looked to grow its base of streaming viewers and that it might need to hike the cost of signing up to see the latest streaming Marvel show or Star Wars spinoff. “Are we pricing correctly?” he mused.
That’s certainly what investors want to see and hear. Netflix, Warner Bros. Discovery and other media companies have seen their shares fall as the rubric for quarterly success has morphed from subscriber growth to more prosaic benchmarks like profits, revenues and liabilities. In its most recent quarter, Disney+ had its first subscriber loss, shedding 2.4 million customers, and yet Disney’s shares were up more than 5% in after-hours trading as the company pledged to tighten its belt.
Iger isn’t just overseeing layoffs. He’s also been remaking the company, undoing much of what Chapek put in place. Like a snap from Thanos, Iger vanished the powerful Disney Media and Entertainment Distribution group that stood at the core of his brief predecessor Chapek’s vision — one that took financial autonomy away from creative executives and centralized it under business operations. In a sweeping reorganization, Iger handed the content keys to Dana Walden, chief of all of Disney’s television efforts, and Alan Bergman, the top name in film. ESPN and its direct-to-consumer business ESPN+ was spun away from the content holdings and will now operate as a standalone company.
Walden and Bergman, already possessing considerable power atop their respective mediums, will now oversee content for Marvel Studios, Pixar, Disney+, Hulu, ABC, Disney Channel and other entertainment-related assets. The pair may well have known about their impending promotions on Monday in Los Angeles, pressed cheek-to-cheek for photographers at the Westwood Village premiere of Marvel’s “Ant-Man and the Wasp: Quantumania.”
It wasn’t all smiles on Wednesday’s earnings call as Iger offered up a blunt assessment of the core of the problem that’s bedeviling the entertainment business as it embraces its streaming future. Simply put: the new ways of generating money can’t match the old ones.
“The streaming business, which I believe is the future and has been growing, is not delivering basically the kind of profitability or bottom line results that the linear business delivered for us over a few decades,” Iger said.
In the interim, Disney hopes to cushion that short fall by continuing to rely on traditional forms of distribution, releasing movies on the big screen, where it recently scored blockbuster successes with “Avatar: The Way of Water” and “Black Panther: Wakanda Forever,” and on linear television, where it’s fielded hits such as “Abbott Elementary.” A theatrical release has several downstream windows –from video-on-demand to licensing — that make them valuable. And cable television continues to boast lavish retransmission fees that haven’t been equaled from digital delivery systems. Disney and other companies are introducing ad-based streaming services as another way to bolster revenues.
Ultimately, though, the streaming revolution has initiated a power shift. And it’s one that may make some of Iger’s best-laid plans more difficult to pull off.
“The impact of technology is creating a huge ‘authority shift’ from the producer and distributor to the consumer,” Iger said. “As that authority has shifted, it’s made the traditional business more complicated, more challenging.”
So what does Iger mean? Well now, streaming customers can add and drop Disney+, Netflix, HBO Max and their ilk on a monthly basis, mixing and matching based on what shows they are offering or movies they’re premiering. That means that each service must invest in buzzy content or risk falling victim to the fickle affections of the general public. Making high-end content doesn’t just require creativity and luck. It requires money. And as Iger and the other media moguls know all too well, there’s simply not as much moolah to spare these days.