Good morning.
Can Disney get its mojo back? Mickey’s kingdom has lost its magic in recent years. Despite Bob Iger’s return as CEO, the stock is still trading at 35% below its level of four years ago. Most commentary has focused on the foot faults of former CEO Bob Chapek, who had a tin ear for the concerns of employees, board members, political partners, customers, and just about everyone else. But Fortune’s Shawn Tully has dissected the company’s problems, and says they go much deeper than stakeholder mismanagement. Citing research by Nelson Peltz’s Trian, which has taken a stake in Disney, Tully notes three problems in particular that will be difficult to fix:
- The acquisition of 21st Century Fox in 2019: Disney thought it needed Fox’s library of content to fuel the launch of its streaming service. But the Trian research suggests Disney vastly overpaid, forking over some $52 billion to buy the studios from the Murdoch family at 26 times EBITDA.
- Disney focused on subscriber growth at the expense of profitability, participating in a kind of streaming arms race that was cheered at first, but now is getting a second look. Disney spent hugely on marketing to sign up unprofitable customers.
- Chapek instituted a matrix structure that separated control of expenses—which lie with the content creators—from control of revenues, now centralized in Disney Media and Entertainment Distribution. That further cut the connection between revenues and costs.
More fundamentally, Tully writes, Disney flubbed the “most basic value equation in finance”—massively increasing its capital by piling on debt and equity while making even less money than before. Whether Iger can bring back the magic may ultimately define his legacy as CEO—and could also inform others considering second acts for former CEOs. You can read Tully’s full analysis here.
Separately, I have had a flashback this week to my very first paying job, which was parking cars at Ruby Falls, a tourist attraction in Chattanooga, Tenn. It was an unpleasant one, and I was always impressed when the owner of the business stopped by, donned one of the unattractive white hats we parking attendants wore, and helped us do the dirty work. It’s a tried-and-true management tactic that’s been resurfaced recently by Uber CEO Dara Khosrowshahi and new Starbucks CEO Laxman Narasimhan, as Fortune's Paige McGlauflin reports here.
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Alan Murray
@alansmurray
alan.murray@fortune.com
