Disney (DIS) CEO Bob Iger has five big questions to tackle in the new year as he settles into the role of high-powered executive once again.
The company’s stock will drop about 45% in 2022, marking the worst House of Mouse annual share price performance since 1974.
Compared to when the stock peaked at just under $202 in March 2021, the story is very different. That’s because stay-at-home orders boosted the consumer media giant, and its fledgling streaming service, Disney+, saw early subscriber success.
With rising costs, indebted balance sheets and a renewed focus on profitability now weighing heavily on the media sector, Iger faces leadership challenges, unfavorable price increases and direct-to-consumer You have to navigate a damaged business plagued by struggling sales departments. make a profit.
How do you monetize your streaming business?
The first and most important question Eiger has to address? Streaming profitability.
“Streaming Loss [are] Geetha Ranganathan, Senior Media Analyst at Bloomberg Intelligence, previously told Yahoo Finance Live: They’re expected to lose another $3 billion in fiscal 2023, so clearly Bob Iger really needs to come back and articulate a better strategy.
In late November, Iger presented investors with what appeared to be the first steps in its strategy. He fired Kareem Daniel and reorganized Disney’s Media and Entertainment Distribution (DMED) division, one of former CEO Bob Chapek’s first big moves.
“As you know, this is a time of great change and challenge in our industry, and our work will also focus on creating more efficient and cost-effective structures,” said Iger. He spoke at the time of the reorganization.
In the most recent fiscal year, Disney’s D2C division, which includes Disney+, Hulu and ESPN+, totaled $4 billion in annual losses. High content costs were the main culprit, as the company increased its content budget by $8 billion to a whopping $33 billion in 2022.
Management said it expects streaming losses to narrow by approximately $200 million in the first quarter of fiscal 2023 before returning to profitability in fiscal 2024.
One of the ways the company plans to meet that timeline is the first cuts and hiring freezes Chapek implemented shortly before the layoffs.
While speaking with employees at the Town Hall, Iger clarified that Disney has no plans to undo the hiring freeze as it continues to evaluate its current cost structure.
Will Disney Buy Comcast’s Hulu Stake?
As Iger charts a path to profitable streaming, it will likely have to decide the fate of streaming giant Hulu.
Disney owns two-thirds of Hulu, with the rest owned by Comcast (CMCSA)’s NBCUniversal. Under the terms of a 2019 agreement that set a minimum Disney-guaranteed Hulu stock value of $27.5 billion, Comcast could ask Disney to buy back its stake as early as January 2024.
That’s what NBCUniversal CEO Jeff Shell expects.
“We have puts, they have calls,” Shell said at an investor conference last month. “We think [Hulu] It’s sold on a fully managed basis, just like an auction, so it’s worth a lot.I think [there are] no sign of anything else happening [other] Than Disney will write a big check for this property in 2024.”
However, some analysts have suggested Disney could sell its majority stake to offset accelerating streaming losses in a hyper-competitive environment.
“Personally, I think selling Hulu is a good idea,” Cowen senior analyst Doug Creutz previously told Yahoo Finance Live.
Hulu is “not a Disney-branded product,” said the analyst. It would be better than everyone. “
Richard Greenfield of Lightshed Partners agreed, writing in a November blog post:
“Basically, Iger has to decide on a streaming strategy,” said Greenfield. “Whether Disney wants to run multiple streaming services as it does now, focus all its energy on a vertically integrated and narrower Disney+ strategy, or just one ‘all’ Disney service (Disney+, Hulu, ESPN+). Are you envisioning a world with a combination of ? “
ESPN: Keep or spin off?
In addition to Hulu, media analysts have long questioned ESPN’s bleak future and whether Disney should consider spinning off the popular sports network.
Loeb argued that if ESPN wasn’t part of Disney, it would have more flexibility to pursue business initiatives such as sports betting.
In a memo issued late last month, Wells Fargo analyst Steve Cajor said, “DIS will begin the ESPN and ABC spin-off process and will begin streaming ESPN à la carte.” Streamlining costs. and balance sheet options are important to reach this result, which will improve the rest of the DIS.”
However, not everyone agrees.
Citi managing director Jason Bazinet previously told Yahoo Finance Live:
Baginette went on to explain that ESPN could become a bigger global business, especially if Disney chooses to leverage the Internet for distribution. He also said the network is generating the bulk of Disney’s cash flow, ultimately funding its pivot to direct-to-consumer sales and helping offset accelerating streaming losses. rice field.
“What Disney is doing in the direct-to-consumer business is a lot like a cable company or a telecommunications company,” said Baginette, noting how the DTC is closing the gap between consumer and sports rights. Emphasized how to fill. “They shouldn’t be spinning it off.”
In its most recent fiscal year, Disney’s linear network segment (which includes ESPN) combined operating income of $8.52 billion.
Parks: Will Iger stop raising prices in the Chapek era?
Following the February 2022 price increase, Disney will raise prices again at most Florida theme parks on December 8, with updates to its annual pass program, the Genie+ app, as well as single- and multi-day ticket prices. Raised the price. , merchandise, food and other purchases within the park.
A price increase already in place at Disneyland Anaheim caused widespread backlash during the tenure of former CEO Bob Chapek.
Even Eiger was reportedly surprised by the sudden increase.
“Prices at Disney’s theme parks rose, and Mr. Chapek claimed it would boost revenue and limit overcrowding,” the executive said, according to The Wall Street Journal.
Disney Theme Parks Disappointed In its most recent quarter, revenues from the company’s Parks, Experiences, and Consumer Products division were $7.43 billion (an estimate of $7.59 billion) and operating income was $1.51 billion (estimated at $1.9 billion).
Iger is unlikely to reverse price increases, but can Disney fans see the number of price increases dwindle in 2023?
Who will be Disney’s next CEO?
Iger has just returned to the CEO position, but investors are already looking to replace him.
Internal candidates such as Dana Walden, chairman of content at Disney General Entertainment, Alan Bergman, chairman of Walt Disney Studios, or Josh D’Amaro, chairman of Disney Parks, Experiences and Products, are next. Rumors are swirling that there may be a queue.
Other possibilities include former employees Kevin Mayer and Tom Staggs. He left the company in 2020 after being succeeded by Iger for the CEO role that eventually went to Chapek.
Mayer and Staggs now run Candle Media, a Blackstone-backed entertainment startup that recently acquired Reese Witherspoon’s Hello Sunshine production company for $900 million. Will Iger be able to buy Candle Media and bring back Mayer and Staggs?
In any case, analysts say Iger’s sudden return will likely complicate the journey of finding a long-term CEO.
“When Iger comes back just a few years later, and whoever is Disney’s next CEO, to regain control, they start questioning from day one whether they’re really the CEO of the company or whether they’re the CEO of Disney. You’re thinking, you’re going to be kicked out like Chapek,” Cowen media analyst Doug Kreutz previously told Yahoo Finance Live.
“If Disney is trying to find someone who can successfully lead the company after 2024, it’s not in a great position,” he warned.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. follow her on her twitter @alliecanal8193 Send an email to alexandra.canal@yahoofinance.com.
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