The Journal. - The Troubled Second Act of Disney CEO Bob Iger

Episode Date: July 19, 2023

Eight months after returning as Disney’s CEO, Bob Iger is straining to put out fire after fire, including streaming losses, an activist investor and TV woes. WSJ’s Robbie Whelan explains why Disney’s troubles run deeper than Iger had expected. Further Reading: - Bob Iger Isn’t Having Much Fun  - Disney’s Iger Hints at Strategic Partner for ESPN  - Disney Extends CEO Robert Iger’s Contract Through 2026  Further Listening: - Disney Wars: Attack of the Activist Investor  - The Disney Boss Who Wouldn't Let It Go  - The Showdown Over Hulu  Learn more about your ad choices. Visit megaphone.fm/adchoices

Last year was a tough year for Disney. The company was in a public feud with Florida Governor Ron DeSantis. Its streaming business was floundering, and investors were getting impatient. And in November, Disney made a big move to try to make things better. It ousted its CEO and brought back its former leader, a legendary Hollywood executive. Now to some breaking business news overnight. Bob Iger announcing his return as CEO of Disney. You know, his investors cheered this decision and you saw the stock move up in a material way.

I was so happy when I saw the news last night. I thought I was dreaming and and it was like my dream came true. Here's our colleague Robbie Whelan. Bob Iger is in a lot of people's estimation the best media executive in history and most successful media executive in history. And one of the, and sort of near the top of the list for just American CEOs in general in terms of what he did with Disney between the years of 2005 and 2020. He built them into this just total juggernaut. But now, months after Iger's heroic return, he hasn't been able to get the magic back. he hasn't been able to get the magic back. He is having a hard time. He has been talking to his friends and telling them how tired he feels

and how much bigger this mess is than he thought it was. And this is really kind of shocking to some people because he's always been seen as this limitless font of energy and enthusiasm and commitment to the Walt Disney Company and its brand. And here he is saying things like,

gosh, I'm feeling kind of tired. This is a huge mess. And man, it's tough. And I think it's fascinating that a guy like that with a legacy that is so unchallenged in terms of its success is in the situation he's in right now. You couldn't write it in a movie how bad things are going for Bob Iger right now.

Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaum. It's Wednesday, July 19th. It's Wednesday, July 19th. Coming up on the show, Bob Iger's troubled return to Disney. At Air Miles, we help you collect more moments. So instead of scrolling through photos of friends on social media, you can spend more time dinnering with them.

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Air Mile. How would you describe Bob Iger to someone who hasn't met him before? Describe Bob Iger to someone who hasn't met him before. Bob Iger is a very smart and very well-spoken guy. One word that people use for him sometimes that I totally agree with is senatorial. He's a guy who's very easy around talent, around creative people. He's very calm and casual around people who you and I might be intimidated by. But also, he's the man who makes their dreams come true, right?

He comes up with the money and the studio infrastructure to take their ideas about how a character should be played or how a song should sound. And he makes them real. He's a dream fulfiller. Iger retired from Disney in 2020 after decades at the company. And he gave CNBC an exit interview at Disney World. This is the last time I am walking through this park with a title. He said he'd set Disney up for a bright future. I was given the opportunity to run a great company, a company that was known around the world as being both a decent company. A company that was known around the world as being both a decent company.

I leave that company, rather, in great shape, having not just preserved the legacy, but have grown basically the legacy of the Walt Disney Company in this world. As CEO, Iger led Disney to buy Pixar. Ants don't serve grasshoppers. It's you who need us. And Marvel. Big man in a suit of armor. Take that off. What are you?

Genius billionaire playboy philanthropist. And Lucasfilm. He told me you killed him. No. I am your father. Oh. Iger also spent more than $70 billion to buy entertainment assets from 21st Century Fox. And he launched a streaming service, Disney+. When he left, he handed the keys to the kingdom to the next CEO, a man named Bob Chapek. Bob Iger had this roadmap, and I think he thought,

Bob Chapek. Bob Iger had this roadmap, and I think he thought, this guy will be able to follow this roadmap to success without changing the company too drastically. And that's not exactly how it worked out. Bob Chapek was a numbers guy. He prioritized ways of getting as much income out of every business that Disney's in. And he was really focused on streaming and growing the numbers, growing the subscriber base for streaming. And I think a lot of people at Disney really felt that in doing that, he lost sight of what makes Disney a really special company. Lost sight of kind of, you know,

we should have the most magical storytelling at this company. He was more focused on how to distribute the stories that they already had outside of kind of, you know, we should have the most magical storytelling at this company. He was more focused on how to distribute the stories that they already had and less interested in kind of coming up with these new ideas and sort of attracting the storytellers that really make Disney special. That's the sense among many employees and fans. And Iger didn't think much of Chapek's performance. That's right. It was a funny thing. Iger chose Chapek to be his successor. And then from the moment Iger left the company, he was kind of on the circuit in Hollywood kind of talking about how bad a job Chapek was doing. hey, can you believe how things are going at Disney? It's not the same place it once was. I think that, to be fair, he also had a lot of executives from within Disney

coming to him with their problems and saying, gosh, I just can't, I miss the old days when I was working under you. And this new guy, I don't like the way he does things quite as much. Then, in November, Disney's board ousted JPEG, and it asked Iger to come back out of retirement and run Disney again. Here's Iger on CNBC. And I felt that, I guess I had a sense of obligation. And I also wanted to help them not only transform the company during, I think, a pretty critical time. them not only transform the company during, I think, a pretty critical time.

Iger held a town hall with Disney staff and promised that he would empower creatives and stop the cost-cutting, a message that was cheered by Disney employees. But quickly, it was clear that the company had a lot of problems, especially in its streaming and television businesses. Disney's TV business includes, well, the biggest part of it is ESPN, which is the most watched sports network in the world. They also own the ABC network. They own a number of cable TV channels, networks, including Freeform, the Disney Channel. Hi, I'm Cole Strauss, and you're watching Disney Channel. Forum, the Disney Channel. For decades, the TV business has been extremely profitable for Disney.

In some years, it accounted for about a third of the company's revenue. And over the years, it's been this TV business that has subsidized more risky experiments that the company has taken. And that capital, generally speaking, came from the big pot of money that Disney has that comes from things like the TV business. But even back when Iger was CEO the first time, the TV business had started to decline. Streaming was on the rise, and he knew he needed to do something. His plan was to gradually transition Disney's content business away from traditional TV and towards streaming.

The idea being, if you attract enough people, if you grow these streaming platforms at a low price, a low price of entry, give them deals for free six months or some kind of discount on the signups. And if you just grow the streaming interest really fast, get hundreds of millions of subscribers, then you'll have the market power to sort of gradually move those customers you have who are on traditional cable packages over to the streaming side. And then you can raise prices and you can sort of figure out what the sweet spot is for a subscription price, and you can figure out what the sweet spot is for how much you need to spend to produce the shows and content that they want to see. As a part of building out Disney+, Iger wanted more content. And he found it in that deal with Fox to buy a roster of shows, movies, and sports broadcasting rights.

So, for example, Avatar, that movie franchise, the top-selling movies of all time, included shows like The Simpsons, included movies like the X-Men superhero movies, the National Geographic channel, FX Studios. They also did up with two-thirds ownership stake in Hulu, which is where some of Disney's most watched shows air now. I'm talking about things like, did you watch The Bear? I have watched The Bear. I watched The Bear too. I loved it. My wife and I binged it in like three days or something like

that. Don't wipe your hands on your apron, chef. Jeff. Chef. And so buying that basket of assets was integral to Disney being able to compete for general interest viewers, which is a huge part of their market. But that streaming investment hasn't quite worked out the way Iger expected. In the final quarterly report of last year, Disney reported that they'd lost $1.5 billion that quarter alone in streaming. The streaming business had lost $1.5 billion in just three months. And that was a major shock to everyone. You know, they'd seen a lot of losses. They knew there were going to have to be losses to grow. But losses of that degree

and coming that quickly were a major body blow. And investors rebelled. That investor rebellion is after the break. With Uber Reserve, good things come to those who plan ahead. Family vacay? Reserve your ride as soon as you book your flights. To all the planners, now you can reserve your Uber ride up to 90 days

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Wherever you go, we'll go together. That's the powerful backing of American Express. Visit amex.ca slash yamx. Benefits vary by card. Terms apply. When Bob Iger returned to Disney, he came back to new priorities from Wall Street investors. There was a time when Wall Street loved to see tens of millions of new subscribers, and they would never ask, how much did you spend to get those subscribers? Now they're asking those questions, and there's a lot more scrutiny of growth for growth's sake.

And people don't like that anymore. In January, some of Disney's shareholders launched a rebellion. It was led by activist investor Nelson Peltz with the help of his friend Ike Perlmutter. Perlmutter, the former chairman of Marvel, is one of Disney's largest individual shareholders. One of the big issues they had was the billions of dollars of debt that Disney took on for the Fox deal. Disney said the deal was, quote, Pelts wanted Disney to add him to the board to have more say in the company's decisions.

Iger fought off the effort. The way he got them to scram and end this campaign, trying to get on the board, was he said, look, we've heard you. We were going to do this anyway, but what we're going to do is we're going to cut $5.5 billion from our budgets this year. And we're going to lay off or we're going to eliminate 7,000 jobs at the company. And that way, the company will be a lot leaner. Things will improve. Presumably, the stock will be a lot leaner. Things will improve. Presumably, the stock price will go up.

We'll start paying dividends again. And you guys will all be happy. There'll be no need for you guys to come at us and cause all these headaches for us. So that worked for the time being. And the restructuring of Disney's business may not be over. That became clear last week at a conference hosted by an investment firm.

They bring all the bigwigs from the big tech companies, from the big media conglomerates out to Sun Valley, Idaho. They all get together and they wear their Patagonia fleeces and they walk around and go hiking and walking and talking about deals. Billionaire summer camp. It's billionaire summer camp, yeah. And while they were there, at the beginning of the week, Disney sent out a press release saying Bob Iger is going to give a big,

important interview on CNBC on Thursday morning. He got up at the crack of dawn, gave this interview, and in it he said that he's going to sell off the TV business. Now there's clearly creativity and content that they create that is core to Disney, but the distribution model, the business model that forms the underpinning of that business and that has delivered great profits over the years is definitely broken. And we have to call it like it is, and that's part of the transformative work we're doing.

And this is huge news. Bob Iger started his career at ABC News in 1974. It's where he grew up as a businessman, as an executive. So selling the linear TV business means potentially selling ABC, the network. So it's almost kind of like I was texting with the source the other day about how it really kind of sounds like it's kind of like he's selling off his childhood home at a fire sale. And it's very surprising for people who know him. Here he is talking about getting rid of the business where he learned how to do business.

Iger also talked about the challenges in the media landscape and how they're tougher than he thought. After coming back, realized that the company was facing a number of challenges, some self-inflicted, some caused by changes in the business, large-scale disruption of certain parts of the business. Did that surprise you? No, it didn't surprise me because he's been saying that for a number of months now to his colleagues and to associates and people who I've talked to, many of them have heard him say that. But I mean, anytime he says, well, my gosh, I, you know, things are really a lot worse than I thought. That's going to upset people. It's going to upset investors. It's going to affect the stock

price. He's got to really do a delicate dance here, but that's where I think at a certain point, you can't ignore it anymore. And you've got to sort of say, look, things are pretty bad. I'm doing my best to fix them. And that's where Iger is right now. The challenges ahead for Disney continue to mount. Last week, the actors' union went on strike, weeks after the writers did the same, potentially delaying production of new shows and movies. And the company's stock price is down 12% from a year ago.

So what does all of this mean for the future of Disney? It just means that Iger is going to stick around for a couple more years because he extended his contract last week as well. He said the problems that the company is facing are just way too numerous and way too big for me to try to wrap this all up in a quick two-year contract. So he's going to stay at the company through 2026. It means that for the foreseeable future, there's always going to be kind of this pressure, this sort of thing hanging over the company, which is if things don't start getting better soon, maybe there's more investors coming back to challenge the company, more activists, or maybe there's people who get fired

and people who get forced out. Whatever it is, whatever is in store for Disney going forward, I don't think too many people in Hollywood think it's all sunshine and roses and good things. I think they think it's mostly fear, tension, uncertainty about the future. And what we have here is the CEO who's in charge of it all acknowledging that and not in the happiest of mindsets about it. So is it going to have a happy ending?

Happy ending or sad ending, notwithstanding, it's going to be a much longer movie than we originally thought. That's all for today, Wednesday, July 19th. The Journal is a co-production of Gimlet and The Wall Street Journal. Additional reporting in this episode by Joe Flint and Jessica Tunkel. Thanks for listening. See you tomorrow.