Bob Iger and "The Age of Great Anxiety"
“Retirement is great.”
On Sunday, November 20th, the Board of Directors of The Walt Disney Company announced that Bob Iger, who ran the company for a 15-year period ending in early 2020, would return as CEO, effective immediately. The objective of his unexpected appointment, per the press release outlining the transition, was “a mandate from the Board to set the strategic direction for renewed growth at Disney and to work closely with the Board in developing a successor to lead the company at the completion of his [two year] term”.
On the second item, succession was a key focal point during Iger’s prior stint as CEO – and he failed. As a reminder, Iger postponed his retirement on four occasions (he was originally set to relinquish the role in March 2015), which unsurprisingly led to consternation in the C-suite and the eventual departure of some accomplished executives who may have been a good fit for Disney.
But in early 2020, Iger finally found his man: Bob Chapek. (Chapek began his tenure a few weeks before the pandemic slammed Disney’s business, most notably in the Theme Parks / DPEP segment). Over the ensuing 33 months, Iger lingered behind the scenes, with complaints about Chapek’s decision-making inevitably making their way to the financial press. Long story short, I think Iger deserves a very poor grade for his last attempt at “developing a successor”; hopefully he learned some valuable lessons in the process.
The events during Chapek’s tenure that led to this outcome could be fairly summarized as death by a thousand cuts. At various times, he stumbled through issues that negatively impacted Disney’s relationship with some important stakeholders (inside and outside the company). In the end, as one executive put it, “he irretrievably lost the room”. It’s water under the bridge now, but Chapek was dealt a very difficult hand; it demanded the highest level of managerial prowess, and he ultimately fell short of that requirement.
The Path Ahead
“I had to fix it, and fix it fast... There were three strategic priorities: (1) invest in high-quality branded content, and branded is critical there, (2) embrace technology, and (3) go global in a much more profound way… We were making Miramax films and Touchstone films; we were spreading our capital a little bit too widely, so I focused it.”
As I noted in my most recent Disney write-up (“Commence Phase Two”), this is clearly a period of heightened concern in the media industry. Speaking to Disney specifically, the company has embarked on a strategy to capitalize on the long-term opportunities available in global DTC / streaming (or at least the hopes of a long-term opportunity). The path to making that vision a reality has introduced significant financial headwinds in the short-term, with run rate DTC losses in the most recent quarter of ~$6 billion. At the same time, the U.S. pay-TV bundle, which is the cash cow that helps to support the DTC investments, is seeing heightened subscriber losses. Finally, the difficult macro environment presents another layer of uncertainty for Disney.
As Iger returns to set the “strategic direction for renewed growth at Disney”, we basically have three buckets in the video / content business to focus on (areas where he may tweak the company’s current strategy): (1) DTC, which is growing quickly and is generally on track to meet or exceed the goals Iger laid out near the end of his tenure; (2) linear, which faces clear headwinds but is largely outside of Disney’s control (unless they’re willing to demote the DTC business); and (3) theatrical, where Disney’s overarching strategy continues to be a limited number of tentpole releases each year. As I think through each of these buckets, my primary takeaway is that Disney’s current strategy is largely aligned with what Iger previously envisioned.
That said, he clearly has some concerns with the current org structure (Kareem Daniel, who featured prominently in Chapek’s management team, was shown the door shortly after Iger retook control); in addition, there’s reason to believe Iger will be more attuned to the concerns of analysts and investors, most notably as it relates to the sizable DTC losses and the path to profitability in that business. (Does this require a thinner content strategy, one that reverts to narrowly focusing on Disney’s core IP? If so, it begs the question whether assets like Star and Hulu belong in the portfolio.)
As we assess the recent results at Disney, particularly how they compare to Iger’s vision for the business, let’s start with a favorite topic of mine: ESPN and the distribution of U.S. sports rights. Here’s what Iger had to say about ESPN+ on the Q4 FY19 and Q1 FY20 calls (right before his departure):