So Iger’s In Charge; Now What’s Next At Disney?

So, it’s been an entire two weeks since Prodigal CEO Bob Iger returned to the helm at Disney in stunning fashion. Everything’s all better, right?

Well, not really.

Issues that have been festering since Iger was CEO the first time are still in full fester. The setting for success is considerably more complicated and competitive than it was just three years ago. And Wall Street expectations have evolved quickly in ways that won’t be simple to meet.

Certainly, Iger has murmured the right things to staff and the Street the past couple of weeks. Share prices have risen notably from a low of around $86 apiece after Bob Chapek’s disastrous Nov. 11 earnings call, reaching nearly $100 before settling back down with the rest of the market on Monday.

And yes, he’s undoing Chapek’s reorganization that put all green-light decisions in the hands of a centralized organization headed by his long-time lieutenant. That enraged creative-side executives, who now, presumably, will all uniformly and quickly crank out cost-effective, award-winning hits for theaters, cable, broadcast and streaming operations.

Or not.

He also has a golden opportunity to undo Chapek’s extremely bullish projection that Disney+ would have as many as 260 million subscribers by the end of 2024. Disney+ has around 164 million subs now, so that promise to Wall Street is looking, ahem, excessively ambitious. Pull it back, and give investors more realistic expectations, especially for metrics that matter.

In the meantime, Iger is not undoing Chapek’s surprise post-earnings announcement of a hiring freeze and search for spending cuts. Iger named a committee of top executives to figure out what the new reorganized reorg looks like. Along the way, they almost certainly will look at layoffs and other cuts.

The reality is, after losing around $4 billion on streaming this fiscal year, Disney will need to attend to its finances, and fast. The freeze on hiring and most travel will help, but so too will reconsideration of its programming priorities, and much else.

That’s especially so as a softening economy continues to erode ad revenues everywhere, even as Disney prepares to launch its ad-supported Disney+ tier later this week. Sneaky price hikes alongside the new ad tier will bump average revenue per user as much as 20 percent, the company estimates. That will make Wall Street happier, now that investors are beginning to understand that revenue per user and churn are more important metrics than net new subscribers.

So, after two weeks, what’s on Bob One’s plate for the two years remaining on his contract that he still hasn’t fixed? It’s a long list:

Hulu: Someone has to pull a trigger on the Disney acquisition of Comcast’s one-third stake in Hulu, under a 2019 deal that says either side can make it happen at a minimum enterprise value of $27 billion, by 2024, while Iger is still in office. So….who’s it going to be? And at what price? Even at $9 billion, it further ties Disney’s hands with other acquisitions, and the company hasn’t yet figured out where Hulu fits long term with Disney+, international service Star and ESPN+. And not-shockingly, Comcast thinks Hulu is worth a lot more than Disney has signaled it wants to pay.

ESPN/the other legacy networks: All of Disney’s broadcast and cable networks are facing the same eroding revenues as cord-cutting accelerates. Nowhere is the concern more pronounced, though, than with ESPN, with its fat but fading cable affiliate fees and pricey long-term investments in sports rights. ESPN+ is an afterthought in Disney’s streaming universe, and otherwise underfed and unprepossessing. Spin off the cable network to private equity, like AT&T did with WarnerMedia and DirecTV while keeping a stake? Keep milking the cash cows until that last nickel of affiliate fees is hand-delivered?

Acquisitions: Iger made a big part of his reputation on acquisitions, including Marvel, Star Wars/LucasArts, Pixar, streaming provider BAMTech, and most of Fox. But Disney still has a debt hangover from those deals that may preclude any more transformative deals any time soon. That hasn’t stopped silly season speculation, like Disney should buy Netflix, or sell to Apple. Also, any deal must pass muster with increasingly hawkish regulators. Less problematic (and, I would argue, more strategically important), the company could buy a videogame publisher. EA and Take Two are out there, and depending on regulators, Microsoft’s acquisition of Activision Blizzard may get blocked. Given how much time younger audiences spend on games – a sector Iger has never successfully navigated – perhaps it’s time to make a deal here. Adding further urgency to this notion: Apple, Amazon, and Netflix all have serious game investments.

Competition: Closely tied to acquisitions is the much stiffer competition now facing Disney, especially in its home market. When DIsney+ debuted days after Apple TV+ three years ago, the only notable streamers in the U.S. market were Netflix, a still-sleepy Amazon Prime and Hulu. Now, add in Peacock, Paramount Plus, HBO Max, and a sheaf of ad-supported and FAST networks led by the Roku Channel, Freevee, Tubi, and Pluto TV. Yes, it’s almost certain a couple of contenders will get bought in the next couple of years. But will that be Disney doing the buying, given its limits, or someone else. And while some growth is still possible for newer contenders in the hyper-saturated U.S. market, the real opportunity is overseas. Overseas remains a long slow slog, with its own costs, expectations of local content, and regulatory headaches.

Franchise fatigue: The company has been grappling with concerns about cadence for its Star Wars films for several years now, an issue that hasn’t disappeared with Disney+, despite highly regarded streaming series such as The Mandalorian and Andor. In much the same way, several highly regarded, innovative Marvel series, including Wandavision and She-Hulk: Attorney at Law, have arrived in the past couple of years.. But the underperformance of some Marvel and Pixar films, amid general box-office malaise, suggests a reconsideration is needed for Disney’s franchise-related films and streaming series. Should Disney go back to selling some series to outside distributors, or keep it all in-house? Should it make a wider array of non-franchise series for Disney+, broadening what the service is? With Kareem Daniels out alongside Chapek, who decides how long, or if, features get a theatrical release before going to streaming or elsewhere?

Succession: No, not the award-winning HBO series modeled on Rupert Murdoch’s plutocratic patrimony. Yes, Iger bought most of Murdoch’s empire,. That said, despite significantly more charm and emotional intelligence than Logan Roy, Iger has been no better at figuring out who’s next. Finding someone who can run all of the complex beast that is Disney – including parks, resorts, cruise lines, consumer products, and all those film, TV, and streaming operations – won’t be easy. If it was, he would have gotten it right the first time. The board made a point in its hiring announcement one of Iger’s most important tasks the next two years is finding a successor. It says something about the board’s own significant shortcomings that it can’t figure out a new CEO all by its little self. Actually, the fact that it went back to Iger in something of a panic says something too, and something even worse.

Activist Investors: Both Dan Loeb’s Third Point Capital and Nelson Peltz’s Trian Fund Management have taken notable stakes in DIsney in recent months. Both have strong opinions about the need to address some of the many issues the company is facing. Unfortunately for Iger, the two have different opinions about how to do that, and about Iger himself (Peltz is reportedly not a fan of Iger’s surprise return). Third Point reached a deal in September that included a seat on Disney’s board; Trian is seeking the same, among other changes. Trian has until the end of this week to nominate its own board slate for Disney.

So, welcome back, Bob. Time to get to work. And no long holiday break either. It’s going to be a momentous couple of years for Hollywood’s most storied brand.