Disney’s first earnings call with Bob Iger back at the helm was as much of a blockbuster as we expected it could be. With a proxy fight looming and the dismantling of the former CEO’s legacy, it’s almost as if the company thought to throw us a bone by announcing sequels to some beloved animated franchises and extra money coming back into investors’ pockets in the form of dividends. And you would think that with 7,000 people being let go up in Burbank that at least one analyst might have a question for Iger about it.
Incredibly, all that still leaves a lot of questions unanswered and threads dangling. Hopefully we get some things cleared up before next quarter comes around.
5 Things We Learned
A Big Re-Organization Means Big Layoffs
Bob Iger made good on his commitment to return power and accountability to the creatives at Disney and restructure the company under just three branches: Parks, ESPN, and the newly formed Disney Entertainment. That’s a lot of creatives and people falling under that one new roof, which will now be led jointly by Dana Walden and Alan Bergman, and it means those creatives will be the ones calling the shots (and taking the blame) on what gets made, where it gets released, and how it gets marketed. But with that comes the loss of 7,000 jobs, many of them likely among these entertainment ranks. Former CEO Bob Chapek’s prized DMED division is gone, and Disney hopes all the new moves amount to $5.5 billion in cost-saving synergies.
As Iger and CFO Christine McCarthy clarified on Wednesday, roughly $3 billion in those savings will come from a reduction in content spend. Those changes won’t be noticeable in 2023, they explained, and it’ll still put Disney in the low-$30 billion range for overall content spend. But Iger said numerous times on the call that Disney aims to focus on more “aggressive curation” when it comes to content in reducing costs on the general entertainment side of things, and that means taking a hard look at the cost of everything Disney makes. Iger gave the example that by putting all creatives under one unit, it’ll allow them to plan better when it comes to making things for both global audiences and local international ones.
“Frozen” and “Toy Story” and “Zootopia,” Oh My!
It’s not exactly a surprise when Disney announces that a sequel in one of their franchises is in the works, but during the call, Iger announced not one sequel, but three. Installments in the “Frozen” and “Zootopia” series are in development at Walt Disney Animation Studios, while a fifth “Toy Story” film is coming from Pixar. Iger mentioned a recent Nielsen report that might’ve encouraged him to give the green light to all three projects. No other information about these movies — including creative teams, release dates, and how in the world the “Toy Story” saga will continue after Woody and Buzz’s heartbreaking goodbye in the fourth movie — was disclosed, but they should help animation at the company recover at the box office after the underperformance of last year’s “Lightyear” ($226 million against a $200 million budget) and “Strange World” ($73 million worldwide).
ESPN Is Not For Sale, so Stop Asking
When Iger announced that ESPN would now be its own entity separate from the Disney Entertainment division, he knew he would get a lot of questions about whether that means it’s finally being primed to be spun off from Disney. And he was prepared. Iger didn’t use these words but was emphatic in saying ESPN is not for sale, adding that the sports brand remains a “differentiator for this company,” but one they need to figure out how to monetize better.
“We’re not engaged in any conversations right now or considering a spinoff of ESPN. That had been done, by the way, in my absence, and I’m told that the company had concluded after exploring it very carefully that it wasn’t something the company wanted to do,” Iger said.
Incredibly, that didn’t stop any questions on ESPN. One analyst even wondered at what point Iger aims to get ESPN out of the linear television business altogether and focus on streaming exclusively instead. It’s just way too soon.
“If you’re asking me is the shift inevitable, the answer is yes, but I’m not going to give you any sense of when that could be, because we have to do it at a time that it really makes sense for the bottom line, and we’re just not there yet,” he said.
Pandora in California
Since 2017, guests of Disney World in Florida have been able to visit James Cameron’s luscious world of Pandora via a themed area in the Animal Kingdom theme park. Disneyland park-goers over in Anaheim, California haven’t been as lucky, but that’s set to change soon with an “Avatar Experience” announced by Iger during the earnings call. It’s unclear if this experience will comprise the two existing Animal Kingdom “Avatar” rides — “Flight of Passage” and “Na’vi River Journey” — but fingers crossed that the Tulkun space whales from current box office smash “The Way of Water” make an appearance. And hopefully heading to Pandora won’t break the bank, as Iger spoke on the call about the company’s continuing plans to make the parks more affordable for consumers.
“It’s clear that some of our pricing initiatives were alienating to consumers,” Iger said, hinting at some recent moves from Chapek’s era that had started to make the parks “not perceived to be as accessible or as affordable as we should’ve been.”
Dividends Are Back!
When you’re cutting $5.5 billion in costs, it allows you to pass along some of those savings to the investor. Iger announced Wednesday he’s asked the board to reinstate dividends by the end of the calendar year, something Disney hasn’t done since before Covid. At first, Disney said those dividends will be “modest” and just a fraction of what they were before Covid, back when they were paying $.88 a share to investors semi-annually, but that hopes to increase. Investors should be seeing dollar signs regardless, and it should be one more tool to get activist investor Nelson Peltz off their backs. Speaking of whom…
NBCU Photo Bank/NBCUniversal via Getty Images
5 Things We Didn’t Learn
Trian Management CEO and activist investor Nelson Peltz has made a stink about trying to get on Disney’s board, and the board has made clear over the last few months they want nothing to do with him, meaning a proxy fight is coming very soon. But Peltz’s name (or of his son who is running as an alternate) didn’t come up once on the earnings call, and Iger made only a brief comment in regards to his succession, pointing to Mark Parker as chairing the search committee.
DeSantis and the State of Florida v. Disney World
Since last year, one of the biggest stories surrounding Disney has been Florida Gov. Ron DeSantis’ attempts to strip Disney World of its self-governing status, in petty retaliation for former CEO Bob Chapek’s 180 regarding the state Republicans’ controversial “Don’t Say Gay” bill. That saga reached a new stage on Monday, when Florida lawmakers filed a new bill, expected to pass in the special legislative session scheduled to end next week, that would give DeSantis power to appoint members to the board of supervisors of Disney World’s special tax district, Reedy Creek. This bill wasn’t necessarily a shock, as DeSantis appointing board members was a compromise floated as a solution to the dispute between Florida and Disney in December. And while it’s not optimal for Disney, the bill won’t eliminate their self-governance status completely, which might make the situation less urgent for the company.
Despite it all, Iger was mum about the situation. So Disney’s only real response was resort president’s Jeff Vahl recent statement merely saying that the company is “monitoring” the legislation.
Disney+’s Long-Term Subscriber Goals
At least one analyst was fishing for Iger to give an updated number or re-assess his predecessor’s guidance on long-term subscriber growth at Disney+. Chapek had given a hefty recommendation that Disney+ could reach between 230 to 260 million subscribers by 2024 (as of today’s earnings they sit at 161 million), so the opportunity was sitting right there for Iger to scale that number back. He didn’t bite, just nibbled.
“In our zeal to go after subscribers, I think we had gotten a bit too aggressive in terms of our promotion, and we’re going to take a look at that,” he said. “We can’t get to profitability and turn this into a growth business without growing subs. So while we’re taking off the table sub-guidance, we’re still going to look to grow subs, we just want to grow quality subs that are loyal and that we actually have an ability to price effectively to those subs.”
Iger and McCarthy did not however change their guidance in saying that the DTC business would be profitable by 2024, so that’s something.
A Decision on Hulu Can Wait
Iger does know that Disney has to make a decision on Hulu this year, yes? That’s at least a $27.5 billion decision for Disney if they’re going to buy out the remaining third of the streamer that Comcast owns, or choose to sell the two-thirds that Disney owns. That would be another great way to bring in cash for a company that’s now laser-focused on savings. But despite the DTC business still losing $1.05 billion (Hulu did add 800,000 subscribers this quarter), it didn’t once come up. Maybe Iger wants some time to see how Hulu does under the new structure that’s in place before putting anything in stone.
Yes, Licensing is Possible, We Just Don’t Know How Much
This Monday, Bloomberg reported that Disney’s top brass was discussing the possibility of ramping up their licensing business to sell the rights of film and TV properties to rival media outlets. This strategy would be quite the shift from Disney’s stance since launching Disney+, which has been to keep their content underneath the House of Mouse. The report said Iger would share more details about licensing during the call, which he did — sort of.
In response to a question during the call, Iger did say that licensing will potentially be a part of Disney’s profit strategy going forward, but hedged in giving any more details and said the company “wasn’t really there” in terms of disclosing what Disney’s licensing approach will be. As such, it’s unclear how aggressively Disney may end up pursuing licensing, what companies it might start licensing to, and when they might ramp up licensing, if at all.
“We have opportunities using the great talent that we have, to create for third parties and we’re going to look at that very seriously,” Iger said during the call. “I actually think this is a nice opportunity to create growth business for the company, but it’s way too soon to predict what it will be.”
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