With Bob Iger back at the helm of The Walt Disney Co., analysts who follow the Burbank-based entertainment and media giant say that he has some tough decisions ahead of him.
Kenneth Leon, a New York-based research director at CFRA Research, said in a research note from Nov. 21 that Disney remains a leading company with great franchises but that the company needs a more pragmatic strategy, especially with a recession looming.
Leon said it was the reality of how difficult it is to grow profitability in streaming services that led to Iger’s return as chief executive.
“Disney’s ambitions to aggressively scale Disney+ and be profitable by 2024 are likely to be scaled back with new leadership,” Leon wrote in the note. “We think Iger will look to better harmonize Disney assets in movies, TV programming and distribution to attain higher profitability.”
Leon added that he expects the company to downsize its ambitions in emerging markets like India that offer lower subscription rate plans for streaming services.
“What to do with Hulu, where Disney may purchase the remaining 33% interest by 2024 or earlier at a minimum valuation of $27.5 billion from Comcast, will also be a key decision for Iger and the board of directors,” Leon said in the note.
Big announcement
On the night of Nov. 20, the Disney board of directors announced in a surprise move that Iger was returning as chief executive of the company.
Iger, who served as chief executive of Disney from 2005 to 2020, immediately replaced his successor in the position, Bob Chapek.
Iger will serve in the position for two years with a mandate from the board to set strategic direction for renewed growth and to work closely with the board in developing a successor to lead the company at the completion of his term, according to a release from Disney.
“I am deeply honored to be asked to again lead this remarkable team (of employees), with a clear mission focused on creative excellence to inspire generations through unrivaled, bold storytelling,” Iger said in a statement.
Susan Arnold, chairman of the board, thanked Chapek for his service over his long career, including navigating the company through the Covid-19 pandemic.
“The Board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the Company through this pivotal period,” Arnold said in a statement.
“Iger has the deep respect of Disney’s senior leadership team, most of whom he worked closely with until his departure as executive chairman 11 months ago, and he is greatly admired by Disney employees worldwide — all of which will allow for a seamless transition of leadership,” Arnold added in her statement.
One of his first moves was getting rid of Kareem Daniel, the head of the media and entertainment distribution division at the company and a key ally of Chapek.
Sell Hulu?
Doug Creutz, managing director and senior research analyst covering media and entertainment for Cowen Inc., a New York City-based financial services firm, said in an interview with Yahoo Finance Live that Disney would be better off selling Hulu.
But as the streaming service is part of the bundle offered by Disney, it is a little more complex than just carving it out and offloading it, Creutz added.
“To sell it would underline what a strategic error the Fox deal was for Disney,” Creutz added. “Which, of course, Iger underwrote that, and I don’t know if he wants to underline that at this point in his career.”
In 2019, Disney acquired the media assets of 21st Century Fox for $71 billion.
The most challenging part of this situation is the selection of a successor, if, as he said he would, Iger leaves after two years, Creutz said in the interview. The next chief executive, whoever is selected, will be looking over their shoulder from day one wondering if they really are the CEO of the company or if they are going to be pushed out like Chapek was, Creutz said.
“That is not a great position for Disney to be in if they are trying to find a person to lead the company successfully starting in 2024 and forward,” he added in the Yahoo Finance Live interview.
Iger has already talked about recentering the company around the creative content it can deliver, Creutz said.
While Chapek may not have a creative background – he was the head of the company’s theme parks before being appointed CEO – the content that Disney put out in his two and half years as the chief executive, particularly that released on Disney+ from Marvel Entertainment and Lucasfilm, has been quite good, Creutz said.
Chapek’s ouster came nearly two weeks after Disney missed Wall Street expectations on earnings and revenue for the fourth quarter.
The company reported on Nov. 8 an adjusted net income of $649 million (30 cents a share) for the quarter ending Oct. 1, compared with adjusted net income of $791 million (37 cents) in the same period a year earlier. Revenue increased from the prior year by 9 percent to $20.2 billion.
Analysts on average expected earnings of 57 cents on revenue of $21 billion, according to Thomson Financial Network. Those quarterly results were believed to be behind the announcement a week later of a hiring freeze and staff cuts at the company.
According to a Business Journal estimate, Disney had 12,200 local employees as of last year, but it was not known how many of those workers would be impacted by any upcoming staff reductions.
