By Gary Symons
TLL Editor in Chief
Disney is the world’s largest studio and the largest entertainment licensor, so what happens at Disney affects everyone in the licensing industry.
News the Magic Kingdom has announced 7,000 layoffs and a major restructuring of the entire company is cause for concern … but there’s good news in the latest earnings call as well.
This was also Disney’s first earnings call with Bob Iger back in the CEO’s chair, and he took to the webinar microphones facing a looming proxy fight from activist investors. Saying this call was a Disney blockbuster would be an understatement … and in true Disney fashion, we were left with a cliffhanger ending that just begs a sequel.
Many of the questions for our industry were answered, but others were not, so here’s our Top Six takeaways from Disney’s onslaught of news.
The Reorganization and the Layoffs
Iger is spending time undoing some of the changes made by Bob Chapek, who took over the reins after Iger stepped down, and who was then let go when Iger returned. Iger’s promise was that he would return decision-making power to the creative minds at Disney, and in doing so, he also streamlined the company into only three divisions. Those include Parks, ESPN, and the newly formed Disney Entertainment.
That latter organization, which creates most of the properties for licensing, will be headed jointly by Dana Walden and Alan Bergman, so they can now take all the credit when things go well, and all the blame when things go … less well.
“For nearly 100 years, storytelling and creativity have fueled The Walt Disney Company, with virtually every interaction we have with our consumers emanating from something creative,” said Iger. “I am committed to positioning this company for a new era of growth. Our strategic restructuring will return creativity to the center of the company, increase accountability, improve results, and ensure the quality of our content and experiences.”
However, the streamlining of the Disney organization will result in the loss of 7,000 jobs, fulfilling Iger’s commitment to the board and to investors that he would cut costs. Disney estimates all of the changes will result in $5.5 billion in cost saving.
About $3 billion will come from reducing the amount the House of Mouse spends on content, which is a little less than 10% of the company’s current $33 billion content budget. The rest will come primarily from reduced salaries and related staffing costs.
Iger also believes that by streamlining the content division into a single organization, the entire global organization will be able to make better decisions, producing more content with less waste.
No More Proxy Fight?
Iger entered the week of his first earnings call with the shadow of a proxy fight looming over the boardroom.
However, on the day of the earnings call the board of directors issued a press release confirming Nelson Peltz of the Trian Fund “is no longer pursuing a proxy contest at Disney.”
In a statement issued Feb. 9, the day after the earnings call, the board said, “We respect and value the input of all our shareholders and we appreciate the decision by Trian Fund announced by Nelson Peltz this morning.
“This is a moment of great opportunity for The Walt Disney Company, as we recommit to our historic 100-year legacy of unrivaled creativity and a future of sustained growth and profitability. We are pleased that our Board and management can remain focused without the distraction of a proxy contest, and we have tremendous faith in Bob Iger’s leadership and the transformative vision for Disney’s future he set forth yesterday.”
The Status of ESPN
Some analysts believed Disney was preparing to sell off its ESPN business, and pressed Iger on the issue, asking whether it was being separated into its own division to make it easier to sell.
Instead, Iger said there is no plan to sell ESPN, and the focus is on learning to better monetize the sports network.
“We’re not engaged in any conversations right now or considering a spinoff of ESPN. That had been done, by the way, in my absence, and I’m told that the company had concluded after exploring it very carefully that it wasn’t something the company wanted to do,” Iger said.
Iger did say Disney is looking at eventually taking ESPN out of the world of cable in the long run, but said that isn’t happening right now.
“If you’re asking me is the shift inevitable, the answer is yes, but I’m not going to give you any sense of when that could be, because we have to do it at a time that it really makes sense for the bottom line, and we’re just not there yet,” he said.
That could mean that Disney plans to improve the way it streams sports on Disney+, but otherwise, it appears there will be few immediate changes at ESPN in terms of its core role.
What’s Happening at Hulu?
Disney faces a major decision about what to do with its TV offshoot Hulu, which is still one-third owned by Comcast.
The obvious options are to sell its own share, or to buy the share that Comcast owns, but at the currently accepted valuation, that would be an investment of at least $27 billion.
On the other hand, selling Hulu would bring in a lot of cash for a company that is currently focused on savings. Even though Hulu added another 800,000 subscribers over the past year, it’s still losing roughly $1 billion this past year.
However, Iger did not reveal any new plans for Hulu, perhaps indicating he’ll give it time to become profitable.
Iger did say that streaming in general remains his top priority, and that likely indicates he is more likely to see Hulu as a valuable property in the long term.
In a statement, the company said, “The streaming business remains a top priority for the company. Disney’s unparalleled collection of renowned and trusted franchises and brands, combined with the reach of the streaming portfolio (consisting of Disney+, ESPN+, Hulu, Star+ and Hotstar) creates rich and direct connections between the consumer and the company’s stories and characters, powering growth across the entire company.”
Some Good News on New Film Releases
Disney made an absolute fortune on some of its best entertainment programming for kids, and the company is returning to those roots with the announcement of three major sequels.
Those include new installments for Frozen and Zootopia from Walt Disney Animation Studios, and a fifth Toy Story film from Pixar. During the earnings call, Iger let slip a revealing comment about a recent Neilsen report that showed 10 of the top streaming movies in 2022 were from Disney.
The more recent film Encanto led the Neisen ratings followed by Turning Red, but Frozen placed eighth, Zootopia placed 11th, and Frozen 2 placed 14th. Replying on Twitter, Iger wrote, “10 of 15 from @Disney! That’s not bad!”
Releasing new content based on the company’s most successful content is seen as an almost surefire way to recover Disney’s film revenue, after the disappointing performance of Lightyear, which earned $226 million against a $200 million budget, and Strange World, which earned only $73 million globally.
Potentially Better News on Content Licensing
Many content licensees were understandably upset that Disney pulled virtually all of its content from other services, shifting them over to Disney+ in an effort to grow the company’s streaming business.
But on Feb. 5, Bloomberg reported that Disney’s top management was considering the idea of increasing their licensing of film and TV properties to rival outlets. That could mean Disney content would be available on services like Netflix or Amazon Prime, as well as other streamers throughout the world. Obviously Disney+ would get those properties first, but Disney content has proven it can draw audiences years after its released, so content licensing deals could in fact become a lucrative revenue stream for the company, while simultaneously raising the profile of its films and series among audiences it does not reach through Disney+.
Iger refused to release any details about that discussion, saying he “wasn’t really there” when it came to disclosing what Disney’s licensing strategy might be … but he also didn’t deny it’s being considered.
““We have opportunities using the great talent that we have, to create for third parties and we’re going to look at that very seriously,” Iger said during the call. “I actually think this is a nice opportunity to create growth business for the company, but it’s way too soon to predict what it will be.”
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