Addressing Disney's Challenges: Bob Iger's Crucial Solutions
Disney's future dominance is in question as it grapples with unprofitable streaming, an ongoing actors strike, and uncertainties regarding succession plans Additionally, concerns about price hikes and content are further adding to the company's woes
Disney has experienced a lack of magic this year.
In the previous month, the company marked its 100th anniversary, a significant milestone deserving celebration. Throughout the past century, Disney has emerged as one of the leading media and entertainment companies globally, boasting a market capitalization exceeding $150 billion.
However, the House of Mouse's future hangs in the balance due to various challenges. These include an unprofitable streaming business, an ongoing actors strike, a decline in attendance at Disney World Resort in Florida, legal battles with Florida Governor Ron DeSantis (a Republican presidential candidate), and uncertainty surrounding the CEO succession plan.
The stock price of Disney, currently at around $84 per share, is at its lowest point in nearly a decade. It has decreased by 8% since CEO Bob Iger returned to the position last November and is down 3% since the beginning of this year. In contrast, some of Disney's competitors, such as Comcast and Warner Bros. Discovery (owner of CNN), have witnessed significant increases in their stock prices. Comcast's stock is up by more than 18% this year, while Warner Bros. Discovery has experienced a 22% increase.
Disney, like its competitors, is facing uncertainty in the media landscape as viewers increasingly turn away from linear TV in favor of platforms such as TikTok and YouTube, which are outside the control of traditional media giants. However, Disney has been hit particularly hard with significant disappointments at the box office and concerns about how it will replace its declining revenue source, ESPN, among other challenges.
The company is scheduled to release its quarterly earnings report on Wednesday afternoon after the market closes. These results will be a crucial indicator of the company's current financial health. According to data from Refinitiv, analysts on Wall Street predict that the earnings per share for the quarter will be $0.70, with revenue totaling $21.3 billion. This represents a slight decline from the previous quarter's reported revenue of $22.3 billion.
On Monday, it was announced by Disney that Hugh Johnston, who is currently the chief financial officer at PepsiCo, will be assuming the position of Disney's CFO. This appointment comes after the departure of longtime Disney executive Christine McCarthy in May. As Disney is currently in a quiet period leading up to its earnings announcement, no comment was provided in response to a request for further information.
Uncertain future for Disneys linear TV assets
The struggles of the linear TV business are no secret, and Disneys challenges in traditional TV are also impacting almost all other legacy media companies in the US.
In the last quarter, Disneys revenue from linear television continued to decline, experiencing a 7% decrease compared to the same quarter in the previous year.
Iger has suggested a strategy to generate funds for Disney's linear assets, such as ABC, Disney Channel, FX, and National Geographic, through a potential sale. He acknowledged the undeniable impact of cord-cutting trends on the profitability of linear platforms and expressed a willingness to explore various strategic alternatives.
Bob Iger attending the premiere of the movie Indiana Jones and the Dial of Destiny during the 76th Cannes Film Festival in Cannes, France on May 18, 2023.
Reynaud Julien/APS-Medias/ABACA/Shutterstock
According to Jessica Reif Ehrlich of Bank of America, ESPN is still a standout asset in Disney's conventional media portfolio. Despite the rise of streaming platforms, ESPN continues to attract a dedicated audience of sports fans to cable TV. Ehrlich describes ESPN as the vital component that keeps the cable bundle profitable.
How will price hikes affect streaming subscribers?
Despite the growth of cord cutting, viewership has declined. This is why Ehrlich suggests that ESPN should hasten its shift to streaming, considering the decreasing number of people subscribing to traditional TV and the rising costs of sports licensing.
Disney's attempt to shift its operations towards the era of streaming has yielded mixed outcomes.
Last October, Disney increased the cost of its ad-free Disney+ subscription to $13.99 per month, while maintaining the price of its advertising tier at $7.99 per month.
"The streaming advertising market is rapidly growing, surpassing the advertising market for linear television," stated Iger during Disney's third quarter earnings call in August.
As Disney's streaming service continues to incur losses, the increase in prices is implemented. However, the company has expressed confidence in Disney+ turning profitable by the end of 2024.
Disney encountered a potential obstacle in its plan: it experienced a decline in streaming subscribers in the US and Canada during the last quarter, although there was a 2% growth in international signups. Jason Bazinet, a Citigroup media analyst, emphasized that investors will keenly observe this quarter to determine if Disney's recent price increases for streaming will lead to further subscription cancellations or if the rate of decline has reduced.
Disney may have an additional strategy to increase revenue for the streaming service. Similar to Netflix, Disney has suggested that there will be a stricter approach to address password-sharing on Disney+. More details on this matter may be revealed by company executives during the earnings call scheduled for Wednesday.
Disney is not solely relying on Disney+ for its streaming future. It recently revealed its plans to purchase Comcast's stake in Hulu for $8.61 billion, which will give Disney full ownership of the platform.
Content concerns
Disneys financial health could be at risk due to shifting consumer preferences. This year, some of Disneys highly anticipated movies like "Indiana Jones and the Dial of Destiny" and "Ant-Man and the Wasp: Quantumania" failed to perform well at the box office.
In a recent note, Evercores Disney analyst Vijay Jayant predicted that Disney will slightly underperform fourth-quarter estimates. This can be attributed to the decline in linear advertising and the disappointing performance of the latest Indiana Jones film at the box office. The US release of the latest installment of Indiana Jones took place on June 30.
Concerns regarding Disney's content slate arise as the film industry has experienced a significant halt in production for over six months due to a writers' strike from May to September, with an ongoing actors' strike.
Disney World angst
It may not be all bad news for Disney, though.
In the last quarter, the parks division of the company stood out as revenue surged by 13% to $8.3 billion. Disney attributed this growth primarily to its international parks such as Shanghai Disney Resort and Hong Kong Disneyland Resort.
Disney World Resort in Florida has been facing a decline in attendance in recent months, despite the company's plans to invest heavily in its theme park business. During the summer, parkgoers at Disney World experienced shorter ride wait times and reduced crowds compared to expectations.
Iger has credited the recent downturn to a general decline in tourism in Central Florida. However, the upcoming earnings report on Wednesday will reveal the extent to which the summer slowdown affected park revenue, as the financial results encompass Disney's fiscal fourth quarter, spanning from July to October of this year. Moreover, the ongoing legal dispute with Florida regarding control of the district containing Disney World has drawn attention to the company's political stance and sparked debates surrounding its role in the culture wars.
Who can lead Disney after Iger?
The uncertainty faced by Disney comes at a time of upheaval at the companys corporate offices.
Earlier this year, Iger made an announcement stating that the media giant would be eliminating approximately 7,000 employees from its workforce worldwide in three phases.
Reorganizations within the company have also affected the top-level executives. Almost a year ago, Iger returned from retirement unexpectedly to reclaim the position of Disney CEO, following the unexpected termination of his successor, Bob Chapek, by the board.
Disneys longtime CFO, Christine McCarthy, stepped down from her position in June. This week, Johnston was named as her successor.
In his second act as CEO, Iger has made a commitment to finding a suitable CEO to replace him when his contract ends in 2026. However, it remains uncertain if the quest for a new CEO has produced any outcomes thus far.
