Bob Iger is back as the House of Mouse’s big cheese. One of his first orders of business: figuring out Disney’s streaming strategy.
Disney officials announced late Sunday that Iger, who stepped down as the company’s chief executive in early 2020 after a remarkable 16-year run, would immediately return and replace his hand-picked successor, Bob Chapek, as CEO. The Shakespearan machinations follow a tumultuous three years for Chapek, who never quite emerged from Iger’s shadow and presided over a dramatic decline in the company’s stock price. Disney shares, which were down 41% year-to-date through Friday, were up 6% in mid-day trading Monday.
In announcing the move, Disney Chairman Susan Arnold declined to throw Chapek under the bus for the media empire’s sagging financials. But she pointedly noted that Disney is embarking on “an increasingly complex period of industry transformation,” for which Iger is “uniquely situated” to lead the company.
For Disney and Iger, the department undergoing the biggest metamorphosis is video streaming.
Disney has made massive bets on the future of streaming, pouring tens of billions of dollars annually into Disney+, Hulu, and ESPN+. And so far, it’s been a net loser. Earlier this month, Disney posted fiscal fourth-quarter streaming losses of $1.5 billion, bringing fiscal-year total losses to $4 billion.
Disney leaders knew streaming would take time to turn a profit. Under a strategy initially implemented by Iger, Disney planned to spend gobs of money on high-quality content—much of it tied to intellectual property he acquired—and offer its streaming service at a bargain price for multiple years. Disney hoped the approach would lead to acquiring a critical mass of subscribers, who would later stomach incremental price hikes.
All was mostly going as planned under Chapek, who forecasted that Disney would reach streaming profitability by 2024. But the sheer scope of Disney’s streaming losses and some less-than-encouraging trends in the past quarter—namely, a slight drop in average revenue per Disney+ subscriber in the U.S. and Canada—put Wall Street on edge.
Iger will undoubtedly arrive with a mandate to put streaming on more solid footing. But there are few easy solutions at hand.
The sexiest move entails a splashy acquisition by the executive who shrewdly snapped up Marvel, Lucasfilm, Pixar, and a big chunk of Twenty-First Century Fox. Yet even in an industry ripe for consolidation—nobody, with the exception of Netflix, makes money in streaming—there are few clear-cut options.
Netflix makes some sense, and Disney is one of the few companies with the bandwidth to absorb it, but antitrust regulators would pounce on such a purchase. Amazon, HBO Max parent Warner Bros. Discovery, and Apple are unlikely to sell their streaming properties. Neither Paramount+ nor Comcast-owned Peacock really moves the needle or fits snugly with Disney’s IP-driven content strategy.
Alternatively, Iger could take Disney back to its roots, making it into a family- and franchise-focused platform while slashing costs on other content. Disney is projected to spend more than $30 billion next year on streaming content—an amount roughly double that of Netflix, despite the two companies touting similar subscriber totals.
Two top analysts signaled their preference for this approach in client notes following the Iger announcement, according to the Hollywood Reporter. MoffettNathanson analyst Michael Nathanson wrote that he hopes Iger “re-focuses (Disney’s) investment on areas of franchise strength and away from broader general entertainment content.” Wells Fargo analyst Steven Cahill added that he expects Iger’s arrival “could reopen discussion about whether Disney+ is to be a franchise IP content hub or a broader entertainment platform.”
Then again, Iger might ride out the current strategy.
Disney officials believe streaming losses have finally peaked ahead of two landmark moments set next month. The cost of Disney+, Hulu, and ESPN+ are all set to rise between $2 and $3 per month in December (though the price to bundle all three will remain the same). Meanwhile, Disney+ will debut an ad-supported tier at $7.99 per month, the current price for ad-free service. If Disney can avoid meaningful amounts of subscriber churn and dramatically boost revenue, profitability isn’t out of the question.
Whichever route Iger picks, it will be one of the most consequential choices of his second stint at Disney. After three years away, investors will have to hope Iger still has some Disney magic left in the tank.
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Jacob Carpenter
