In the camel back’s final straw that was Bob Chapek’s disastrous Disney earnings call earlier this month, one number stuck out: the $1.5 billion the company lost on streaming last quarter. Ouch.
Now Hollywood’s favorite CEO, Bob Iger, is back in charge, promising to fix all that ails the Mouse House, first by reversing Chapek’s company reorganization that enraged Disney creative executives. But giving all those creatives the power to say “yes" again doesn’t fix the bigger issue.
Also read: Iger Calls Apple M&A 'Pure Speculation,' Says Disney Must Now Focus on Streaming Profits, Not Scale
Basically, Disney is spending way more money than it’s bringing in from the streaming services that both Bobs said were the company’s future. At the same time, its many legacy businesses are making less than expected.
Does Iger pull back on the promises to Wall Street both he and Chapek made of reaching break-even on streaming spending by 2024? Does he repeal Chapek’s projection of up to 260 million subscribers by then? Should the company sell more projects to other outlets, or make fewer shows for its streaming services? For that matter, is streaming still the future of the company? How much should the company be investing in streaming while it’s still milking ESPN, ABC, Freeform and theatrical movie releases, never mind its prodigious parks & resorts, consumer products and other divisions?
It’s a crucial set of questions for Iger to solve, right after that big one at the top of his list: Find a permanent successor.
But it won’t be a simple solve. As former HBO executive Charles Schreger, now an NYU marketing professor, put it to NPR’s Marketplace, “Streaming is a terrible business.”
Or is it? That’s what Iger has to figure out as the entire industry goes through a fundamental reconsideration, and investors demand profits sooner than once promised.
After Netflix’s equally disastrous earnings call back in April, it went through a wrenching bunch of changes to clean up its messy balance sheet.
Now, Netflix is adding subscribers again, and more importantly, making money again, with nearly $500 million in free cash flow last quarter on $7.9 billion in revenue. For everyone else, this Streaming Transition Thing has been a lot more challenging.
As Netflix put it in its third-quarter earnings investor letter, “… it's hard to build a large and profitable streaming business — our best estimate is that all of these competitors are losing money on streaming, with aggregate annual direct operating losses this year alone that could be well in excess of $10 billion, compared with our +$5-$6 billion of annual operating profit.”
Netflix remains focused, mostly, on its pure-play streaming approach, though with some new wrinkles like that ad-supported tier.
It’s even forgoing easy money like a potential box-office bonanza from the Knives Out sequel, Glass Onion. Rather than a long run in thousands of theaters, Netflix is giving it a one week in a few hundred screens before bringing it to its 223 million subscribers. For Co-CEO Ted Sarandos, the real win is delivering a hugely appealing movie to those paying customers his company already has, giving them another reason to stick around. ■
Compare that to Warner Bros. Discovery, which is leaning into its past as it struggles with $48 billion in debt,. CEO David Zaslav has been dumping direct-to-streaming originals and day-and-date simultaneous movie releases and other such experiments, and focused on milking the old stuff as long as he can.
Given the modest scale of HBO Max (roughly a third of Disney Plus in subscribers), and WBD’s many financial limitations, maybe he’s right.
So what does Bob Iger supposed to do with streaming? He helped inaugurate streaming’s modern era when Disney Plus launched three years ago and quickly rocketed past100 million customers.
Perhaps rather than swinging a mouse-eared version of Zaslav’s meat cleaver, Iger will gently shift Disney’s various streaming services to a more modulated approach. Whatever Iger’s reorganization becomes, it will still need to figure out what goes to streaming, and what goes somewhere else first. This month’s movie debuts will certainly give him much to consider.
Marvel’s Black Panther sequel, Wakanda Forever, topped the long holiday weekend again, pushing its theatrical gross to $675 million worldwide, after just three weeks in theaters.
BoxOfficeMojo.com says,the Black Panther sequel is already 16th in domestic grosses among the 30 Marvel Cinematic Universe releases (not counting Black Widow, which went straight to streaming deep in the pandemic last year).
Contrast that with another Disney film’s disastrous debut this weekend, the animated Strange World. It limped out of theaters with a barely-there $18.6 million domestically, and could lose $100 million on its theatrical release. Should Strange World have just bypassed theaters for Disney Plus, and saved those tens of millions of dollars spent on a traditional marketing push?
Zaslav may not want to hear it, but Iger may conclude some projects make more sense with traditional (expensive) theatrical releases, but others do better on streaming. While Iger wants to empower his creatives, he’ll also need a nuanced approach to all the $33 billion the company spends on content.
Marvel and Star Wars films do great in theaters, family programming not so much lately. Also, maybe there’s reason to pull back on some of the incessant cadence of Marvel and Star Wars streaming-only series. Or perhaps some of those series would do better if they were sold to competitors (much as Sony is doing with some Spider-Man shows), expanding the franchise reach and overall profitability.
No doubt the Disney strategy on movies, TV shows, and streaming projects needs further evolution. More nuanced thought about what goes where, and yes, more attention to the bottom line of revenues and not the top line of new subscribers, will be on tap. Good thing Iger’s supposed to be the king of nuance. He’ll need it.
