After Swift Return, Iger faces Disney’s long-term challenges

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

What’s next?

Mr. Iger, 71, had only been fully retired from The Walt Disney Company for 11 months. He handed over the position of chief executive to his hand-picked successor, Bob Chapek, in February 2020, but remained as a very active executive chairman until late last year. He had spent his last two years focusing, as he put it, “on the creative side of our business” and making sure “our creative pipelines are alive,” as he put it, before stepping down.

But he’s returned to a very different Disney.

Morale has rarely been lower, people inside the company say, the result of a stock price that has fallen from $197 to about $96 over the past 20 months, destroying the stock options some senior Disney executives are granted as part of their compensation became. During Mr. Iger’s 15 years as CEO (2005 to 2020), Disney became accustomed to winning and winning and winning. In 2019, the company presented seven films, each grossing more than US$1 billion at the global box office. No other studio had more than one; most had none.

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

Even Hollywood is not the same.

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

Investors now want to see old-fashioned profit in streaming. Mr. Chapek, who was fired on Sunday, and Disney’s chief financial officer, Christine M. McCarthy, repeatedly pledged that the Disney+ streaming service would be profitable by 2024. Wall Street and even some Disney executives remained skeptical.

Unlike most of its competing media conglomerates, Disney can rely on its theme park business for profit and growth — unless a recession hits. But cable television, long the safety net for these businesses with its steady growth from rising payments from cable providers, is dying faster than expected.

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

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

Disney declined to comment.

Mr. Chapek was thrown out of the proverbial castle tower in part because senior company executives, including Ms. McCarthy, told the board that they no longer believed he could guide Disney through its troubles. These challenges start with streaming, but are perhaps far greater than most outsiders realize.

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

One area that appears to need intense 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 last film, Lightyear, hit theaters despite being tied to the blockbuster Toy Story.

On Wednesday, Walt Disney Animation Studios will release a separate division, 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 about $35 million during the five-day Thanksgiving holiday in the United States, a terrible result for a film that cost $180 million to make and tens of millions more to market Has.

Notably, these are among the first animated films to roll off the Disney assembly line without creative input from John Lasseter, the Pixar founder who resigned from Disney in 2018 after complaints of unwanted touch in the workplace.

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

Mr. Iger and his leadership team must decide whether to proceed with this plan or to shift gears. His return also gives Disney an opportunity to reassess Disney+’s profitability and subscriber goals.

“Do you envision a world with just one ‘everything’ 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) poses another complex problem. More and more people are opting out of cable, resulting in lower transmission fees and advertising revenue for companies like Disney that program cable networks. But costs continue to rise, particularly at ESPN, which is embroiled in a sports-TV rights frenzy, and new bidders like Amazon and Apple are joining the fray.

“We would expect a deep cost cut at ESPN, which should include a review of all upcoming sports rights to more aptly adapt to these new times,” Michael Nathanson, a top media analyst, told clients on Monday. For example, should ESPN suspend negotiations for an extension of its National Basketball Association rights package? It currently pays about $1.3 billion a year for them, according to Mr. Greenfield.

Disney’s theme parks in Florida and California have recovered well from the pandemic after being closed for long periods. Mr. Chapek was widely recognized as an accomplished operator of the theme park division, which he headed before rising to Chief Executive.

But the parks have their problems too. Mr. Chapek and his team relied heavily on price increases for admission, food, merchandise, parking, hotel rooms, and wait-time reduction perks to offset spending on Disney+ and other streaming initiatives. The price hikes have prompted a cascade of negative coverage and may not be sustainable, analysts fear if the US economy continues to deteriorate.

Shanghai Disneyland, the establishment of which in 2016 was one of Mr. Iger’s outstanding achievements, has been opened and closed and opened and closed by Chinese authorities to control the spread of the coronavirus. Hong Kong Disneyland has also struggled. The frosty relationship between the Chinese and US governments is making Disney’s business in China more difficult.

there is more Also among matters requiring Mr. Iger’s attention is an activist hedge fund, Trian, run by Nelson Peltz, which has amassed a large stake in Disney and plans to press for a seat on the board as part of an operational reorganization. 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-minor matter of identifying and nurturing another successor, which Disney’s board of directors said on Sunday was part of Mr. Iger’s mandate — and until the end of his contract in two years.

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

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

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

Since then, the difficulty of Mr. Iger’s second stint at Disney has made itself felt. Shares are down 4 percent since then.