Less than three months into his second stint as CEO, and Disney’s Bob Iger has unveiled his first sequel.
This, as the recently returned executive told investors Wednesday (Feb. 8) that he was embarking on his third corporate revamp. A makeover that he said would be no less disruptive than the creative control era he oversaw in the early 2000s with the acquisition of Pixar, Marvel and Lucas Films, or the shift-to-digital years he marshaled that culminated in the launch of Disney+ three years ago.
“Now it’s time for another transformation.” Iger told analysts. “One that rationalizes our enviable streaming business and puts it on a path to sustained growth and profitability, while also reducing expenses to improve margins and returns,” he added, saying the changes were need to better position Disney to weather future disruptions, increased competition and global economic challenges.
To get there, effective immediately, Disney will begin operating under three newly named core business segments, Disney Entertainment, ESPN, and Disney Parks, Experiences and Products.
As much as Iger said there would be a push to “return creativity to the center of the company,” he also made it clear that restoring profitability — especially in the short term amid an expected recession — was the main focus and that getting there, was going to require some $5.5 billion in belt-tightening that will see 7,000 layoffs and other cuts across the company.
“This (restructuring) is one of the most important steps we can take to improve the economics of our streaming business,” Iger said. “There’s a lot to accomplish but let me be clear, this is my number one priority.”
The cutbacks and retooling announcement come alongside the company’s fiscal first quarter earnings report for the three months ended Dec. 31, in which it saw an 8% increase in revenue, helped by a 21% pop at its parks, but a 7% decline in operating income.
This, in a quarter that saw the successful debut of the Avatar sequel, “The Way of Water,” which Disney said was its fourth most successful film ever with $2.2 billion in box office receipts already, with many multiples of residual earnings expected to follow in the years to come.
While the new Avatar blockbuster is certainly impressive, the returning CEO — who will turn 72 on Friday (Feb. 10) — is acutely aware that the $14.7 billion of revenue generated by the Media and Entertainment unit accounted for 63% of Disney’s total revenue but nothing in the way of operating income.
In fairness, the so-called Linear Networks (ABC and ESPN) within the Media group did generate a $1.2 billion profit but that generated was almost completely erased by a $1 billion loss in the unit’s direct-to-consumer business.
By way of comparison, the Disney Parks, Experiences and Products division accounted for virtually all of the company’s $3 billion profit, hence Iger’s focus on profitability and accountability.
“This reorganization will result in a more cost effective, coordinated and streamlined approach to our operations and we are committed to running our businesses more efficiently, especially in a challenging economic environment,” Iger said.
While Iger said he was proud of how far — and fast — Disney+ had grown to over 161 million subscribers, the Q1 results not only marked a 1% drop and the first time that tally has declined in the new unit, but will also be the last time the company makes the “total subs” number public.
“Like many of our peers, we will no longer be providing long-term subscriber guidance in order to move beyond an emphasis on short-term quarterly metrics,” Iger informed the investor community, noting that color on other relevant drivers would be offered in its place.
“Instead, our priority is the enduring growth and profitability of our streaming business,” he said, reiterating that Disney’s current forecasts projects that the streaming unit will become profitable by the end of next year.
“Achieving that remains our goal,” Iger said, promising fans and investors alike that sequels in its “Toy Story,” “Frozen” and “Zootopia” productions would be coming soon the help towards that objective.
“This is a great example of how we’re leaning into our unrivaled brands and franchises.”