Iger’s Disney comeback hampered by TV woes and box office flops

Bob Iger’s retirement from Disney only lasted 11 months, but since his return as chief executive in November he has admitted to being surprised by the number of problems he has discovered at the company. 

The decline of the traditional television business has been worse than he thought, leading to a serious drop-off in advertising — and questions about whether the networks remain “core” assets for Disney.

A number of box office disappointments, including the recent Haunted Mansion, have prompted analysts to conclude that Disney’s vaunted movie studios have lost their creative spark.

“In some cases the challenges are greater than I had anticipated,” Iger told CNBC last month. “The disruption of the [traditional TV] business has happened to a greater extent than even I was aware of.”

For years the thriving TV business helped pay for splashy acquisitions that marked Iger’s first 15-year tenure, including the hit machines Pixar and Marvel. Later, TV subsidised its expensive push into streaming. But it has now become a drag on the company.

“He’s got some very tough decisions” to make, said a top shareholder. “What do you do with linear [TV]? Linear is a big problem. It still spits tonnes of cash but it’s a declining [business]. And if you try to sell it, I don’t know who’s going to buy it.”

With the stock down 21 per cent over the past year, Iger has been unusually willing to publicly float ideas about which parts of Disney he might want to get rid of.

He wondered aloud earlier this year whether the Hulu streaming service remained essential to Disney, only to say later that it was. He told CNBC that the business model behind traditional TV networks, including ABC, is “definitely broken”, noting that they “may not be core to Disney”.

Iger recently retained two former Disney executives, Kevin Mayer and Tom Staggs, to help him examine options for the TV business, including ESPN, the sports network that for years was the company’s growth engine. Iger is said to be seeking partners to run ESPN, which could include sports leagues or other media groups. It is also examining options for its Indian TV business, according to three sources.

While the TV business is a big headache for Iger, he also faces the challenge of slashing the huge losses in Disney’s streaming businesses, which the company has forecast will not turn its first profit until 2024. 

Streaming and the TV networks are expected to be a drag on Disney’s earnings when it reports quarterly results on Wednesday, along with the weaker-than-expected box office performance of summer films including Indiana Jones and the Dial of Destiny.

Disney is expected to earn 96 cents a share, down from $1.09 a year earlier, on revenue of $22.4bn. Operating losses in the Disney+ streaming service are expected to total $760mn, up $100mn from the previous quarter, according to Citi estimates. Its streaming business is expected to lose 3mn subscribers from the previous quarter.

Investors are also expecting an update on the $5.5bn cost-cutting initiative Iger announced shortly after his return, which has eyed 7,000 job cuts.

Iger’s return was cheered by investors and employees, who hoped that the veteran chief could stabilise Disney following the pandemic and the bumpy tenure of his successor, Bob Chapek. But he has recently drawn criticism after being awarded a two-year extension to his contract, which renewed old doubts about his willingness to leave the job and Disney’s succession planning. Iger’s latest contract ends in 2026.

“Already a two-year tenure has become four years,” noted one former employee. Potential successors “wouldn’t wait for that long, especially when they don’t know if Iger will leave even then”.

Iger, long considered the voice of Hollywood, has also come under fire from striking writers and actors when he said that their expectations were “not realistic”.

There have been internal tensions, including with former chief financial officer Christine McCarthy, who had played a role in unseating Chapek. Disney cited medical reasons when it announced in June that she was stepping down, but three people familiar with the situation told the Financial Times that she departed after tensions arose between her and Iger.

“This is pretty well known in the company,” said a former employee. “She was independent minded and Iger thought that she wasn’t sufficiently loyal to him and his agenda.” McCarthy could not be reached for comment.

McCarthy has been replaced on an interim basis by Kevin Lansberry, but the company has started to search for a full-time CFO.

As it looks to cut costs, Disney is also examining its options in India, where it lost the rights to stream Indian Premier League cricket matches last year in a record-breaking $6.2bn auction. It retained the broadcast rights, however.

“They are certainly looking at options to pare down the liabilities in India,” said an executive familiar with the business. “I suspect an outright sale will be one of the options but it’s not the first or the only option. Iger would want to spin it into a strategic pivot rather than a fire sale.”

Disney declined to comment.

Other former executives said it would be a mistake for Disney to exit the India business altogether. “It hasn’t been pretty, and there’s a lot of sunk costs there,” said one former Disney executive. But selling would mean they lose their foothold in what’s going to be the fastest-growing market that they can get into, because they’ll never get into China.”

Also hanging over Iger is a looming transaction with Comcast, which owns one-third of the Hulu streaming service. In 2019 the companies agreed that either side could force a transaction starting in January 2024, with Comcast holding the right to “put” the stake to Disney, or Disney being able to “call” the stake from Comcast.

Disney is expected to buy out the Comcast stake, which could fetch $9bn or more. 

“Comcast is going to strangle him [Iger] on the price at a time when he can least afford another . . . acquisition,” said the shareholder. “He’ll be getting further into debt.”

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