A Better Mouse Trap

What Disney Should Do

Happy Wednesday War & Peaceniks. Let’s go to Disney Land.

I’ve been hyper-critical of late about the lack direction at Disney in the year since Bob Iger unretired. For good reason.

Over the past five years Disney’s total revenue has grown at a 5% compounded annual rate (CAGR), while its operating (net) income has shrunk at a -3% CAGR. While technically another Bob (Chapek) was CEO two of those years, it’s now apparent that Bob 1.0 was still running the show, the whole time, ultimately firing Chapek and replacing him… with himself.

Disney, like the rest of Media, is going through a-once-in-a-generation transition. I would be more empathetic to Bob during the growing pains, if he had a plan for, y’know, growth (rather than just pain).

Iger launched Disney+, handed it to Chapek, then pink-slipped Bob 2.0 just three months after Disney surpassed Netflix for total worldwide subscribers. Because the sub growth cost too much. In the year since, Iger has slashed billions in costs and cut thousands of jobs. And this has had the basic effect of treading water.

Over the last five years, Disney’s entertainment division - its true core business - has increased revenue. But operating income in the division has shrunk at -14% CAGR.

If there were signs that the slash and pray strategy was working, I’d be more patient. But it is most certainly not. Since Bob’s return, both revenue and operating income have been flat or down. And the only reason they’ve been that good is the theme parks division which has been bouncing back, post-lockdown.

Yes, losses at Disney streaming are down. But revenues in D2C over the same period are flat or falling. This is supposed to be the company’s engine of growth. Shrinking costs is not growth.

Meanwhile their dying cash cow, linear TV networks, are on a painful slide towards their ultimate demise. Revenues are down and, due only to massive cuts, OpInc is flat. If revenues in streaming were growing, this might not be as big a problem. But streaming earnings are not growing.

Parks do spin off cash, but their revenues and net income can’t be counted on to carry the whole company forever. Nor can cutting costs and merging Hulu into Disney+ create enough efficiencies to counterbalance the plummeting revenues and falling profits of their old school TV business.

If there was a plan to transform the TV business into a new streaming cable bundle using Hulu Live as the backbone; or if there were an obvious strategy to funnel death bed revenues from linear TV into new revenues on streaming; or if Iger had demonstrated some larger strategy for growth other than selling off Hotstar, then maybe their stock wouldn’t be at a five-year low, and perhaps Iger wouldn’t be facing yet another proxy fight from Nelson Peltz.

But so far, Iger’s plan has been to admit he didn’t know traditional television was in such trouble, to float the idea of selling ESPN and ABC, just to pull those ideas back when everyone started talking about his lack of new ideas, and to totally bungle the union negotiations during the two strikes.

My lack of patience for Iger’s utter lack of vision stems from my strong belief that Disney entered this new era of Media with the best right to win of any of the traditional players. Their streaming launch was perhaps the best of any entertainment product in history. The (ill-concieved) Fox acquisition did give them one of the world’s best streaming services, Hulu. Their IP library is by far the best on the planet. Iger has a history of being the smartest guy in Hollywood, making key acquisitions for reasonable prices, and minting money on the back end.

But over the last four years, Disney and Iger have lost their edge and, along with it, their pole position in the industry’s race for audience, attention and growth.

However… This week I realized that, while I spend a great deal of time criticizing Bob and the lack of strategy at the House of Mouse, I have not offered a countervailing plan for what I might do were I in his loafers. It’s one thing to throw stones. It’s another entirely to lay out a strategy for what one would do, if they lived inside the glass walls of the Magic Kingdom.

Here then, given the current state and trajectory of Disney, is what I would do to fix up the House of Mouse…