Disney’s New Boss Sounds a Lot Like the Old Boss
Disney CEO Robert Iger surprised investors recently when he revealed that the company’s traditional television business, including the ABC network and ESPN, “may not be core” to its future. Selling the linear networks would leave Disney’s future primarily in its parks and direct-to-consumer businesses. The irony is that this sounds a lot like the vision of former Disney CEO Bob Chapek, who was ousted last fall in favor of Iger’s return.
In a January 2022 memo to Disney employees, Chapek called consumers “our North Star” and said Disney would “put them at the center of every decision we make.” In September, Disney announced perks for subscribers to its Disney+ streaming service related to the company’s theme parks, merchandise, cruise lines and theatrical movies. It was an ambitious vision for Disney as an ecosystem that would weave digital and in-person entertainment together via one app. Two months later, Chapek was out.
THE TAKEAWAY
- Disney CEO Robert Iger once warned managers against relying too much on data. To succeed after selling the company’s networks, he’ll need data more than ever.
Chapek was unusual among entertainment industry CEOs for his long and decorated background in consumer-focused businesses. Before being named CEO in 2020, he had served as head of Disney Consumer Products and chair of its parks and resorts business. He was forced out in large part because his consumer-first, retail-first, data-driven management style clashed with Disney’s creative culture and creative business leaders.
Iger—a broadcast and cable veteran known for favoring creative instinct over research—was critical of Chapek’s strategy from the moment Chapek ascended the Magic Kingdom’s throne. Iger is reported to have previously warned Disney management of using “data to answer all questions, including creative ones.” He dismissed “Disney Prime”—an Amazon Prime Video–style sales pitch to Disney+ subscribers of “Come for the streaming service, stay for the deals”—as “marketing” on his first investor call after returning as CEO. Now he seems to have realized he may have protested too much.
A Risky Bet
The biggest surprise is that Disney would so easily let go of its linear networks business, which generated $23 billion in revenue and $6.8 billion in operating income domestically in 2022. That constituted 28% of Disney’s revenue for the year, and nominally all of its operating income. At the same time, Disney is on the hook to pay at least $9 billion to Comcast in January 2024 for Hulu, which would consume virtually all of its cash on hand. So Iger is betting roughly $16 billion on building Disney’s post-linear future.
Disney doesn’t have a great record of success from investing billions in digital media ventures for its post-linear future. Its streaming business lost $4 billion last year. Its prior efforts at retail-first media businesses have sputtered. It tried to build a Disney Interactive gaming division starting in 1994, purchasing and subsequently closing at least six game studios before shutting the division in 2014. It attempted to make inroads into the creator economy and YouTube ecosystem by acquiring Maker Studios for $675 million in 2014, but that business failed to get traction operationally or creatively. At the end of 2016, Disney folded Maker Studios into the Disney Consumer Products and Interactive Media division.
Arguably, Disney’s only true success in digital media over the past three decades has been the extraordinary launch of Disney+, which reached 50 million subscribers globally within six months of its launch and now reaches 157.8 million subscribers worldwide. But now Disney+ growth appears to be stalling in the U.S., its most lucrative market, where Disney collects an average of $7.14 in revenue per month. Its Disney+ Hotstar streaming service in India has lost 8.4 million subscribers since October 2022 and lowered its subscriber guidance for the current fiscal year.
This Magic (Kingdom) Moment?
Iger’s plan to sell linear networks may be an astute read of this moment as an opportunity to pivot and evolve amid the chaos of declining revenue at ESPN, contentious Hollywood strikes and disappointing theatrical revenues. Or it may be a fundamental misread of streaming’s importance to the future of Disney’s business and Disney’s ability to pivot to a consumer-first, retail-first media future.
I believe it is the latter. The sale of linear networks would leave Disney almost wholly reliant on its Parks and Experiences unit for operating income and operating cash flow. The smaller conglomerate would require a CEO with a background in building and growing retail businesses within or similar to the Disney ecosystem. Effectively, it would need the leadership and experience of someone like Bob Chapek.
Now, this is not an argument for Chapek to triumphantly return as CEO. All available evidence suggests that the Disney ecosystem rejected his style of leadership. But after selling the linear networks, Disney’s leaders will for the first time in three decades be running a media business that is almost entirely consumer first and retail first in both structure and execution. That means the business soon will need to connect the dots across its streaming, theatrical and parks businesses. That will require connecting its database of streaming consumers to its already robust database of park visitors, and making data-driven and consumer-oriented decisions.
Iger once saw this future—with a caveat. In his 2019 autobiography, “The Ride of a Lifetime,” he wrote that Disney needed to disrupt itself—“The Innovator’s Dilemma” style—before it was disrupted by tech companies who were investing more deeply in their entertainment subscription services. But there was a big caveat to that vision, as he reportedly told Disney management in the summer of 2021: “In a world and business that is awash with data, it is tempting to use data to answer all of our questions, including creative questions. I urge all of you not to do that.”
The statement left the impression among Disney management that the new CEO was the wrong man for the job. But now, with Disney’s stock price down 20% over the past six months and Wall Street growing bearish on its future, it’s fair to wonder whether Iger’s warning pushed too hard against the retail model that is now Disney’s future. Iger may have convinced Disney executives to undermine the corporate vision they will need to buy into in order to survive.
Enter Mayer and/or Staggs?
On Monday, former Disney executives Kevin Mayer and Tom Staggs were reported to be back in the Magic Kingdom as advisers to help analyze and develop strategic options for ESPN. Both were potential successors to Iger before Chapek was selected, and there is speculation that this move is part of the Disney board’s search for a successor.
Both have built retail businesses within Disney: Staggs delivered strong results as chair of Parks and Resorts. Mayer led the strategy and build-out of Disney’s streaming ecosystem, as well as the failed digital initiatives discussed above.
After leaving Disney, they formed Candle Media, which has invested in production companies it believes are best positioned to capture revenues from streaming, like Reese Witherspoon’s Hello Sunshine. They have bet on streaming being a more reliable source of revenue for creators than for streamers.
Candle is also betting on creator economy business models with the thesis that “high-quality content with high-quality creators at the right brands [creates] great connections in social media with large audiences.” That has included global sensation (and Disney competitor) Cocomelon, which has 163 million subscribers and 165 billion views on YouTube. Cocomelon is also on Netflix, where it regularly outperforms Disney titles in Nielsen’s U.S. Top 10 rankings for acquired shows.
We don’t know how Mayer or Staggs felt about Chapek’s Disney Prime. But, unlike Chapek or Iger, the pair has bet that there are better growth opportunities from streaming outside the Disney ecosystem than within it.
Disney+Land or Disney+World?
The most significant difference between Iger and Chapek is their view of streaming as a stand-alone business. Iger still believes streaming is the future, the eventual retail successor to Disney’s lost wholesale model in linear. Chapek’s Disney Prime strategy was skeptical of streaming on its own. But it was bullish on streaming within an ecosystem like Disney’s.
In a sense, Iger and Chapek offer similar answers to the question of how to “delight the biggest fans in ways a one-size-fits-all model is not designed to do,” as former WarnerMedia CEO Jason Kilar pointed out in a Twitter exchange with me last year. Disney delivers delight within a “clumsy, expensive conglomerate of unrelated—but great—assets built on top of a nearly 70-year-old flywheel,” as I wrote back in January. Removing linear networks makes that conglomerate less profitable but also less clumsy.
Chapek’s Disney Prime vision treated Disney’s consumer-facing assets as connected and consumer delight as a product of those connections. There was a cohesion to that vision that only a retail-first, consumer-first CEO could see. But, as I wrote in May, Chapek failed at the basic blocking and tackling of investor relations with a story that was too complicated for investors to follow.
Iger may be able to soothe investor discontent with the vision of Disney’s inevitable consumer-first, retail-first media future. But to do that, he will need to rethink his philosophy on data and reconsider the importance of streaming to Disney’s future. If he can’t, his recent contract renewal implies investors may have to wait until 2026 for a leader who understands these things. Disney shareholders may not want to wait that long.