It’s been a rough spring for Disney CEO Bob Chapek, enough to fuel industry murmurs about his future at the top of Hollywood’s biggest media company.
Despite strong operational results, Chapek’s performance -- coming after a battlefield promotion weeks before the pandemic locked down Disney theme parks and the theaters showing Disney movies -- has been marred by the botched handling of a political hot potato affecting the Florida theme parks, and suddenly gloomier growth prospects for everyone’s streaming-video services.
Disney stock prices, like those of every other U.S. public company, are down dramatically from last year, plunging almost in half since a March 2021 high of $197 a share.
And though no one at Disney is accused of any wrongdoing, it’s worth keeping an eye on an unfolding political corruption scandal in Anaheim, where the mayor already has resigned.
A top Disney Parks executive (not Chapek) is referred to in FBI court filings as a leader of a “cabal” of local power brokers effectively running the city where Disney’s original theme park has dominated the local landscape since the 1950s. Chapek headed Disney’s theme park division for five years before becoming CEO. Whatever happens with the corruption case, its timing isn’t great.
With all that as backdrop, will Chapek need a Hail Mary deal to fix his place in the Disney firmament? Or will he end up a pandemic-era placeholder between the sainted Bob Iger and whomever might come next atop of the Mouse House?
Some are suggesting Disney must clarify its muddled bundle strategy, particularly regarding Hulu, the controlling share for which Disney inherited with its 2019 Fox deal. As recently as last year, most observers assumed Disney would buy out NBCUniversal’s remaining 30% stake under a deal the companies signed last year.
Now, it may make more sense for Disney to get out of Hulu altogether. Yes, the service remains the third most popular streaming outlet in the United States, its only operating territory.
But being in the Big Four (Netflix, Amazon Prime, Hulu, Disney Plus) isn’t as fun as it used to be. Boston Consulting Group’s latest streaming report says most domestic growth in subscription services is coming from the second tier of services (HBO Max, Apple TV Plus, Peacock, Paramount Plus), where, downside, churn rates are three times higher.
For the bigger services, BCG wrote: “As it becomes clear that streaming is no longer a pure growth market, we can expect strategies to shift and the market to move into the next phase of maturity as competitors focus more on profitability and test a variety of approaches, including new business models and pricing plans, bundling, partnerships, and M&A.”
Disney, meanwhile, is still losing lots of money on its streaming operations, nearly $900 million last quarter, triple the same period the year before. The company is also marginally cutting its programming spend, $1 billion from what had been a $33 billion plan for 2022.
The provocateurs at LightShed Partners have repeatedly suggested Disney sell off its Hulu shares and use the resulting $18 billion - $20 billion to invest in a more broadly constructed Disney Plus or even to buy Netflix or, intriguingly, Roblox.
“Waiting until 2024 feels suboptimal for Disney to end the current Hulu partnership with Comcast,” LightShed analysts wrote. “Comcast has already taken back their NBCU content for Peacock (kicks in this fall). With Disney proving it can expand the diversity of content on Disney Plus with parental controls (link), there is little rationale for Disney to keep Hulu.”
Certainly, Hulu could use some love from someone. Picking through the offerings on Hulu can be a little sparse these days in terms of eye-catching originals. Much of what’s there initially appeared on ABC, Freeform and FX, with few buzzy originals to break up the legacy leftovers.
A couple of prestige picks have arrived: Under the Banner of Heaven, based on Jon Krakauer’s best-selling book, is getting many critical kudos. Also of note is Conversations with Friends, an adaptation of yet another Sally Rooney novel about the complicated love life of painfully inarticulate Irish writers and performers (who knew there were so many?). Candy, with Jessica Biel and Melanie Lynskey, is getting lost in the flood of true-crime adaptations infesting all the streaming services.
It’s true Chapek was dealt about as bad a hand as possible when Iger hurriedly decamped, a few weeks before the pandemic lockdown hit. Disney was particularly vulnerable to the pandemic’s depredations, with its theme parks and cruise lines shut down, and the theaters carrying its blockbuster movies largely empty or mothballed for months.
Iger had presided as CEO over 15 years of expansion, eye-catching acquisitions, and success on most every front (though the less we say about Disney’s game and social-media forays, the better).
Chapek’s first two years feature some strong upsides: effectively managing through the pandemic’s impacts on parks, a batch of Marvel theatrical hits, the Disney Plus rocket launch.
But it’s impossible to overlook the flap over Florida’s regrettable “Don’t Say Gay” law/political football. That kerfuffle was something like the worst of all outcomes, and has turned Disney into an unlikely right-wing avatar of horrible “woke capitalism.”
Chapek’s tardy comments opposing the bill did little to mollify concerned employees. And they fueled political retribution by the Florida legislature and governor, eliminating a special tax district that gave Disney effective control over the area around its Orlando parks complex.
Chapek was given a relatively short leash when he took over for Iger, a three-year contract that runs out next February. Though board members haven’t in any way indicated they won’t renew Chapek’s contract, it’s worth wondering what they’re waiting for. The contract ends in less than nine months; if Chapek were an all-star shortstop on the Los Angeles Dodgers, Chapek’s agent would be wanting to know whether his client was about to become a free agent
The lack of any sort of signal from the board has certainly set off speculation across Hollywood, according to a Business Insider piece this week quoting 10 high-level sources within and outside the company.
One anonymous Hollywood executive said Chapek, "is going to have to make a transformational move if he wants to keep his job.”
Making another acquisition the level of Pixar/LucasArts/Marvel seems unlikely to pass regulatory muster, especially now that the Federal Trade Commission has finally added its third Democratic member under Chairman Lina Khan, an antitrust hawk.
But it’s just possible that Chapek could figure out a way to make Disney Plus more successful and appealing, while narrowing the company’s streaming focus in an important way. Whether Chapek can pull the trigger on a Hulu sale, and perhaps save his own job, may be the question of the summer.
