As revealed in Disney’s Q1 presentation, Disney has key strategic priorities going forward. In this article, I’m going to break down the strategic priorities that will define Bob Iger’s second run at Disney one by one.
Reorganizing Leadership Structure
One of Bob Iger’s major moves, when he returned to Disney, was putting the power back into the hands of the creatives. He fired Kareem Daniel, who was Chapek’s right-hand man running Disney Media and Entertainment Distribution (the division that at the time made the decisions of where to distribute Disney’s content). Iger then implemented a new structure where the execs of the creative divisions would be more responsible for how much things cost and where each project debuts (theaters, Disney+, linear channels). Disney Media and Entertainment Distribution would drop the M and the other D and become Disney Entertainment. ESPN would become its own solo division (thoughts on that in a future piece), and Disney Parks, Experiences, and Products would remain the same.
Disney Entertainment will be driven by creativity, rooted in accountability and coordination, and committed to efficiency according to Disney’s Q1 presentation. The financial reporting surrounding Disney’s new structure will begin at the end of the year.
Disney Media and Entertainment Distribution would be transformed into simply Disney Entertainment. A massive division that consists of The Walt Disney Studios, Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios, Lucasfilm, Disney Theatrical Group, 20th Century Studios, Searchlight Pictures, 20th Television, ABC Entertainment, ABC News, ABC Signature, ABC owned television stations, Disney Branded Television, Freeform, FX, Hulu Originals, National Geographic, Disney+, Hulu, Hotstar, and Disney Music Group.
The simplest way of explaining Disney Entertainment is this equation:
Streaming assets + Television studios/assets + Film Studios = New Divison.
Now the question begs, will this massive reorganization work? Disney Entertainment will oversee 22 business divisions, and likely more divisions within those divisions. That’s a lot to manage and control.
Alan Bergman (film side) and Dana Walden (TV side) will run the massive division as Co-Chairman. Could this division be a test for Bergman and Walden to see who may become a clear successor to Bob Iger? Or perhaps Bergman and Walden could become Co-CEOs?
Either way, reorganizing the leadership structure was a key priority for Iger and I believe we could see more reorganization during his second run depending on certain events and outcomes.
Cost Reductions
Implementing cost reductions and streamlining organizational structure to enhance productivity is another key initiative in Iger’s second run.
What does it mean?
It means a reduction in Disney’s workforce by 7,000 employees. With Disney Entertainment becoming one massive division, a lot of the cuts will come from marketing. It’s possible as Disney combs through its organizational structure, they find more ways to reduce cost and enhance productivity. Bob Iger is pushing for a return to a four-day in-person workweek at Disney as well. Despite a lot of cast members/employees openly rejecting the idea. Iger’s push to a four-day in-person workweek is assumed to be a move that is about enhancing overall productivity. Maybe productivity at Disney was down since work at home was introduced and the Chapek era?
Another aspect of cost reductions other than job cuts and finding redundancies is Disney controlling its content and marketing spending. Will we see pressure from Disney execs for Pixar and Walt Disney Animation Studios to get their projects under $200 million? Will we see Marvel Studios spend more responsibly on projects? It seems like Disney has spent way less on marketing as of late so I’m curious how far they could trim that division down without it affecting its products and content.
Disney also will spend less on non-sports content by $3 billion. So spending less on non-sports content by $3 billion plus $2.5 billion in operating cost savings like layoffs will get Disney to its cost savings total of $5.5 billion.
Then of course Disney spreading out its capital expenditures at the Disney Parks is another way for them to reduce costs. This move feels like the rug was pulled out from underneath us. It seemed like Disney was finally ready to start investing more in its parks to get more things done. Now that will be at a much slower pace in order to reduce costs. Thankfully, it seems like some projects are priorities and will still have normal construction windows.
Disney+’s profitability and sustained success
One of Bob Iger’s biggest priorities is getting Disney+ to be profitable by fiscal 2024. That’s been a goal for the company since 2019. I think it’s safe to say all the cuts and cost reductions will play into Disney+ reaching profitability.
Other key factors include subscriber growth and ARPU (average revenue per user) growth. Disney+ will have to continue to deliver value to its subscribers. Chapek was a sacrificial lamb in a lot of aspects but he did make a ballsy decision to raise Disney+’s price by $3 (38%). Considering Disney didn’t lose a ton of subscribers in the U.S. despite the price hike, proves that Chapek knew Disney+ is an essential streamer for a lot of homes, and that they did have pricing power.
Within Disney’s Q1 presentation, they have a model that represents their path to profitability and sustained success. Essentially it goes like this:
Content ➡️ Operating Efficiencies ➡️ Subscribers ➡️ ARPU
Disney wants to drive returns on their content. The graph specifically states that Disney is going to be aggressively curating general entertainment, focusing on core franchises, and evaluating their spending. It seems like this is already happening at Disney+ and Hulu with the cancelations of Big Shot, The Mighty Ducks: Game Changers, and Reboot.
Under Operating Efficiencies, Disney states that they will drive efficiencies in marketing, labor, and tech. This will lead to a more cost-effective and streamlined structure. As I’ve stated above, I’m curious to see how the marketing cuts affect Disney. On that same note, I’m curious how the tech efficiencies will go down.
The narrative may be that Wall Street no longer cares about subscribers but you still need subscribers to have a profitable streaming business. Disney understands this and that’s why there will be a focus on gaining and retaining subscribers across all Disney streaming services.
ARPU (average revenue per user) is a gigantic factor when it comes to profitability and sustained success. Just as I mentioned the concept above. Now that all of the Disney streaming services have advertising, there is potential that they can increase inventory which in turn would increase revenue. I’d also expect Disney to show off its pricing power, as long as they deliver on the content and value. The pricing ceiling for one streaming service that combines Disney+, Hulu, and ESPN+ is high.
Disney may reach its fiscal 2024 profitability goal quicker if the subscriber base sticks around and continues to pay more. Yet the key to that 2024 profitability remains in providing content and value to its subscribers.
Improving the guest experience at the Disney Parks
Bob Iger wants to improve the guest experience at the Disney Parks. During Bob Chapek’s CEO run the parks were getting hammered from all angles. Now Disney is trying to cool down the “Disney Parks are losing their magic” narrative. It also seems like Bob Iger is letting Disney Parks, Experiences, and Products Chairman Josh D’Amaro make more decisions, and considering that D’Amaro since his promotion has had to deal with the ramifications of the pandemic it will be nice to see what his division can come up with, without dealing with financial and pandemic restraints.
But what Disney defines as “improving the guest experience” isn’t always the case. In reality, it is improving their bottom line at the parks.
The reservation system is considered a way of improving the guest experience. Most guests would tell you otherwise. The same goes for Genie+ and Lightning Lane. These may improve Disney’s experience with managing the parks but they haven’t improved the experience for the guests at all.
It’s also evident that Disney is trying to bring back some Disney Differences.
Recent changes include more flexible park hopping hours at Disneyland, complimentary self-parking at Walt Disney World, and positive changes for annual passholders at Walt Disney World and Magic Key Holders at Disneyland. Along with increased availability of lowest-price tickets and complimentary photo downloads.
As Iger’s second run continues, I’d expect more changes to happen at the parks to continue this initiative. The Disney Parks are Disney’s moneymaker they can’t afford for that business to struggle or decline while they are trying to build up their streaming and entertainment divisions again.
Focusing on core brands and franchises
This strategic priority is the one that makes the least sense, and the reason why is that most of us assumed this is what Disney was already doing. Disney wants to lean harder and focus on its core brands and franchises. Marvel Studios and Star Wars have been carrying Disney+. I just wish he had better clarity on this strategic priority. Does Iger mean they are going to stop doing general entertainment just to focus on brands and franchises? Either way, it’s a bizarre pitch. Especially considering Chapek was doing the same thing.
The only tangible progress made to this initiative was Iger announcing Zootopia 2, Frozen III, and Toy Story 5. Three films that are clear reactions to Lightyear and Strange World. In a future article, I’m going to go more in-depth into the sequel announcements but all I’ll say is that the announcements felt extremely reactionary.
Outside of the sequel frenzy, Disney’s focus on core brands and franchises will extend to its parks. Iger announced Avatar after the success of The Way of Water would be getting an experience at Disneyland. Iger also revealed that he’s been talking to Josh D’Amaro about adding more beloved franchises into the Disney Parks fold. The parks could be another way we see Disney focus on its core franchises.
Disney should always focus on core brands and franchises but the company is at its best when they create new stories under its creative teams and it results in new brands and franchises (Encanto & The Mandalorian are prime examples). Plus, Disney has to continue to focus on general entertainment content in order to retain subscribers.
Leveraging Disney’s streaming platform to reach larger audiences and optimize the value of Disney’s content
Disney’s other strategic priority is leveraging its streaming platforms to reach larger audiences and optimize the value of Disney’s content.
This can mean a couple of different things.
Optimizing Disney’s content can also mean a couple of different things.
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Zach Perilstein is the Editor-in-Chief of the Boardwalk Times
