Walt Disney Co. stung me for several hundred dollars at the weekend when I took my five year-old to see the Lion King in Hamburg. But, like millions of other delighted customers, I didn’t begrudge forking out for a rousing rendition of the Circle of Life. Selling optimism and wonder in a world of division and uncertainty is potentially a brilliant business model. So why is Disney such a nervous wreck?
Bob Chapek was ousted on Sunday as chief executive officer after barely two years. The storied media and entertainment giant has bounced back from the pandemic but “Bob C” failed to soothe the concerns of investors, restless studio bosses, and politicians who accused the company of becoming “too woke.”
The potential return of maestro Bob Iger, whose celebrated 15-year CEO tenure included the acquisitions of Pixar, Marvel Entertainment and Lucasfilm, may be a useful short-term fix, but in theory he’ll only stick around for two years. Iger’s eventual successor will need to escape “Bob I”’s shadow and make some unpopular decisions. It’s a daunting task.
Moreover, opposition to Iger’s reappointment from activist investor Nelson Peltz’s Trian Fund Management after building a stake worth more than $800 million, according to the Wall Street Journal, indicates harmony isn’t guaranteed.
Chapek had the misfortune to take charge of Disney in February 2020, just as the pandemic forced the closure of its parks and cinemas shut down. He oversaw a swift recovery and the shares reached a record the following year amid excitement about the rapid growth of its Disney+ streaming service. But markets are fickle; once only interested in subscriber growth, investors now yearn for profitability. A US$1.5 billion streaming loss in the latest quarter was as popular as villainous lion Scar.
Management infighting and series of political gaffes spanning the “Don’t Say Gay” row and Scarlett Johansson’s pay have added to the sense of drift. A big cost-cutting drive cemented Chapek’s (somewhat unfair) reputation as a “bean counter” rather than a creative soul.
Chapek’s contract was renewed in June, making his defenestration look clumsy, but in other respects Iger’s second act is well timed. He takes over with Disney’s share price at undemanding levels having fallen more than 40% this year. The long-awaited Avatar sequel is finally due for release next month and Disney’s centenary next year is sure to deliver a shot of nostalgia. He might also find some low-hanging fruit to soothe investors such as buying out Comcast Corp.’s one-third stake in the Hulu streaming service.
But Iger can’t wave a magic wand. Facing a cost of living crisis, customers may eventually recoil at the price hikes Disney is implementing at Disney+ and its theme parks. Movie theatre audiences are also unlikely to rebound to pre-pandemic levels. Metrics such as box office receipts no longer matter as much, upending how “talent” is compensated. Though Disney has an excellent stable of stories and characters, it spent about US$30 billion on content last year to feed the streaming beast, amid competition from deep-pocketed rivals such as Apple Inc., Netflix Inc. and Amazon.com Inc. Not everybody has warmed to its experiments with the Star Wars and Marvel franchises.
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Iger put his finger on the problem in September when he told a conference his industry was entering an “age of great anxiety,” saying:
People who are running these big companies are anxious. Even streaming companies are anxious. Investors are anxious. Advertisers are anxious. The creative community is anxious. Agents are anxious. Everybody’s anxious. They’re anxious because this is an era of great transformation and there are still a lot of unknowns.
I’d add to his list the difficulty of satisfying diverse international audiences in an era of political polarization and culture wars.
Iger’s track record and diplomatic skills give him a head-start in tackling these challenges. Recognizing them, though, is one thing: Solving them is quite another. - Bloomberg Opinion
