After Swift Return, Iger Faces Disney’s Long-Term Challenges

Robert A. Iger moved at the speed of light on two fronts in his first 24 hours as new-former Disney CEO. He sought to restore stability – bringing the core leadership team closer together, exuding a patriarchal sense of security in a company-wide email – while announcing organizational and operational changes designed to “honor and respect” the creative engines of the company, its film and television studios. .

So what comes next?

Mr. Iger, 71, had been fully retired from the Walt Disney Company for just 11 months. He handed over the CEO job to his hand-picked successor, Bob Chapek, in February 2020, but stayed on until late last year as a busy executive chairman. He had spent his last two years deeply focused, as he said before stepping away, “on the creative side of our business”, making sure “our creative pipelines are vibrant”.

But he returned in a very different Disney.

Morale has rarely been lower, people inside the company say, the result of a stock price that fell to around $96 from $197 in the past 20 months, devastating options. purchase of shares granted to certain Disney senior executives as part of their compensation. In Mr. Iger’s 15 years as chief executive (2005 to 2020), Disney has grown accustomed to winning and winning and winning. In 2019, the company released seven films that each collected over $1 billion at the global box office. No other studio had more than one; most did not.

Several of Mr. Iger’s most trusted lieutenants and enforcers have retired, including longtime Disney general counsel Alan N. Braverman and Zenia B. Mucha, who spent 19 years as Disney’s chief communications officer. and its main brand protector. Disney is in debt – more than $45 billion – because of the pandemic and because of the $71.3 billion acquisition of 21st Century Fox assets in 2019, making it difficult for Mr. Iger to continue to new acquisitions. (Some analysts think Disney would be a good fit adding a game company like Roblox to its portfolio.)

Hollywood is also not the same.

When Mr. Iger was last at the helm of Disney, media investors were hyper-focused on streaming subscriptions: sell as many as you can around the world as fast as you can and worry about profitability later. That mood changed abruptly in April when Netflix said it lost more subscribers than it took in the first three months of the year, reversing a decade of steady growth.

Investors now want to see old-fashioned earnings in streaming. Mr. Chapek, who was fired on Sunday, and Disney’s chief financial officer, Christine M. McCarthy, have repeatedly promised that the Disney+ streaming service will be profitable by 2024. Wall Street and even some Disney executives have stayed skeptics.

Unlike most of its rival media conglomerates, Disney can rely on its theme park business for profit and growth unless a recession hits. But cable TV, long the lifeline of these companies with its steady growth thanks to increased payments from cable providers, has died out at a faster rate than expected.

All of this leaves Mr. Iger in a very difficult position.

“He can’t just continue on the path he set before he left because the landscape has changed significantly,” Richard Greenfield, founder of research firm LightShed Partners, wrote with two colleagues in a client note on Tuesday.

Disney declined to comment.

Mr Chapek was thrown from the proverbial castle tower in part because the company’s top executives, including Ms McCarthy, let the board know they no longer believed he could run Disney at through his problems. These challenges start with streaming, but may be far greater than most outsiders realize.

And the problems cannot all be laid at the feet of Mr. Chapek.

One area that seems to need intensive attention is animation, which Mr. Iger and others have described as the heart of Disney — the content that powers everything else, including theme park attractions and consumer products. . Pixar’s latest film ‘Lightyear’ bombarded theaters even though it was tied to the hit ‘Toy Story’ franchise.

On Wednesday, Walt Disney Animation Studios, a separate division, will release “Strange World,” which centers on a farmer on an alien planet tasked with finding a solution to dying crops. “Strange World” is expected to gross around $35 million over the five-day US Thanksgiving holiday, a terrible result for a film that cost $180 million to make and tens of millions more to market.

Notably, it was among the first animated films to roll off Disney’s assembly line without creative input from John Lasseter, the Pixar founder who resigned from Disney in 2018 after complaints about unwanted touching on the screen. workplace.

Disney’s current streaming strategy was established in many ways by Mr. Iger: Disney would build not one, not two, but three streaming services. Disney+ would be aimed at families and core fans of Disney franchises like “Star Wars,” “The Avengers,” and “The Simpsons.” Hulu would focus on broader entertainment offerings and riskier programming. ESPN+ would broadcast live sports.

Mr. Iger and his management team will have to decide whether to continue with this plan or shift gears. His return also gives Disney the opportunity to re-examine Disney+ profitability and subscriber targets.

“Do they envision a world with one ‘all’ Disney service, combining Disney+, Hulu and ESPN+?” Mr. Greenfield and his colleagues asked.

ESPN and Disney’s broader portfolio of cable networks (Disney Channel, FX, Freeform, National Geographic, Disney Junior) raises another complex issue. More and more people are canceling cable connections, which means lower distribution costs and advertising revenue for the companies, like Disney, that program the cable networks. But costs continue to rise, particularly at ESPN, which has been caught in a frenzy for sports TV rights, with new bidders like Amazon and Apple joining the fray.

“We expect significant cost reduction at ESPN, which should include a review of all upcoming sports rights to more adroitly adapt to these new times,” media analyst Michael Nathanson told clients on Monday. leading. Should ESPN, for example, sit out negotiations for a renewal of its National Basketball Association rights package? It currently pays around $1.3 billion a year for them, according to Mr. Greenfield.

Disney theme parks in Florida and California rebounded well after the pandemic, when they were closed for long periods. Mr. Chapek has been widely recognized as a savvy operator of the theme parks division, which he ran before becoming general manager.

But parks also have their problems. Mr. Chapek and his team relied heavily on price increases for admission, food, merchandise, parking, hotel rooms and queue-shortening benefits to offset Disney spending. + and other streaming initiatives. The price hikes have resulted in a cascade of negative media coverage and may not be sustainable, analysts worry, if the US economy continues to deteriorate.

Shanghai Disneyland, whose founding in 2016 was one of Mr. Iger’s signature achievements, has been opened and closed and opened and closed by Chinese authorities trying to control the spread of the coronavirus. Hong Kong Disneyland has also struggled. The frosty relationship between the Chinese and US governments complicates Disney’s operations in China.

There is more. Issues that will require Mr. Iger’s attention also include an activist hedge fund, Trian, led by Nelson Peltz, which has amassed a large stake in Disney and plans to push for a board seat as part of a an operational realignment. Hollywood is heading into bitter contract negotiations with its major unions, and most studios believe a spring strike by the Writers Guild of America is likely.

And there’s the not-so-small matter of identifying and grooming another successor, which Disney’s board said on Sunday was part of Mr. Iger’s tenure — and by the end of his contract in two years.

In an email Sunday night to Disney’s 190,000 employees, Mr. Iger set an optimistic tone about what lies ahead, although “these times certainly remain quite challenging.”

“I’m an optimist,” he wrote, “and if I’ve learned one thing from my years at Disney, it’s that even in the face of uncertainty — perhaps especially in the face of uncertainty — our employees and cast members achieve the impossible.”

Wall Street seemed to agree, at least initially, sending Disney shares up 10% the next morning.

Since then, the difficulty of Mr. Iger’s second stint at Disney has begun to sink in. The shares have since fallen 4%.