Disney CEO (DIS) Bob Iger has not had an easy road since stepping back into the executive position more than a year ago.
The stock is teetering on multiyear record lows. The company’s parks business is slowing, its linear TV division is declining, and its streaming business is not yet profitable. Meanwhile, activist Nelson Peltz has renewed his push to shake up Disney’s board.
Here are some of the key questions Iger will face next year as the bruised conglomerate attempts to turn itself around amid more competition than ever before.
Will streaming reach profitability by target date?
Streaming profitability has been a continued challenge for the industry; however, Iger has stuck with his timeline of reaching profitability in the segment by the end of 2024.
Lower content spending should help. Disney expects to spend $25 billion on content next year versus the $27 billion spent in full-year 2023 as part of broader cost-cutting efforts.
On the earnings call, the company said it expects free cash flow to balloon to pre-pandemic levels of approximately $8 billion in full-year 2024, assisted by that lower content spend.
The company also hiked streaming prices twice this past year, upping the monthly price of its ad-free Disney+ and Hulu plans by more than 20%. The move should help lift average revenue per user, or ARPU.
Looking ahead, Iger said “achieving significant and sustained profitability in our streaming business” is one of Disney’s “key building opportunities” for its future.
What is the future of Disney’s box office?
Another “key building opportunity” for Iger is “the need to strengthen the creative output of our film studio.”
Disney has lagged competitors at the box office despite once being the leader in the industry. Marvel, in particular, has struggled as a franchise ever since 2019’s “Endgame.” The company saw its latest Marvel film bomb in theaters last month.
Disney’s animation business has also underperformed, especially compared to competitors like Universal (CMCSA) and Sony (SONY). Its latest animated title “Wish” fell short of expectations over Thanksgiving weekend.
“I’ve always felt that quantity can be actually a negative when it comes to quality,” Iger said recently, citing an overproduction of content amid the 2019 Disney+ debut. “I think that’s exactly what happened. We lost some focus.”
Iger said in order to achieve maximum creative output, the company will “[focus] heavily on the core brands and franchises that fuel all of our businesses and reducing output overall to enable us to concentrate on fewer projects and improve quality, while continuing our effort around the creation of fresh and compelling original IP.”
Still, analysts say it will be a long road ahead.
“I don’t think the studio is going to be an engine that’s going to help Disney grow for the next 18 months,” Doug Creutz, analyst at TD Cowen, previously told Yahoo Finance. “I don’t think it’s going to get worse, but I don’t think it’s going to get better either.”
How will Iger fend off Peltz and Trian?
Nelson Peltz’s Trian Fund Management, which ended a previous proxy battle against Disney in February after the company committed to various cost-cutting initiatives, revived its fight this fall as Disney’s stock plunged to record lows.
On Thursday, Trian announced plans to nominate Peltz and former Disney CFO Jay Rasulo to the media giant’s board. The activist hedge fund cites the loss of tens of billions in shareholder value, a drop in consensus EPS estimates for the next two years, and disappointing studio content as reasons it’s pushing for a board shakeup.
Rasulo is the second former Disney exec to publicly join Peltz in his push for a board shakeup. Former Marvel executive Ike Perlmutter has entrusted his stake in the company to Peltz, making up the bulk of Trian’s 30 million-plus shares in the entertainment giant.
Iger spoke about the activist fight at the New York Times’ DealBook Summit, saying of Peltz and Trian: “We have to obviously contend with them in some form. I’m certain that the board will hear them out in terms of what their plans are, what their ideas are.”
Still, Iger said he’s not focused on the battle in the near term: “I have a lot to do. I’m not going to get distracted by any of that.”
He may have to if Peltz’s campaign builds momentum.
How do linear assets fit into Disney’s strategy?
Iger said earlier this summer the company would take an “expansive” look at the entertainment giant’s traditional TV assets, signaling they could potentially be sold.
The company’s TV portfolio includes broadcast network ABC and cable channels FX, Freeform, and National Geographic.
He eventually reversed course, clarifying at last month’s Dealbook summit that linear TV assets “are not for sale.” Still, the company is “constantly evaluating” their fit within the overall business, he said.
Prior to those comments, Dana Walden, head of Disney’s entertainment division, echoed similar sentiments, telling employees, “Linear channels are very deeply embedded in our streaming strategy.”
“[Consumers] want to watch live shows, sports, live events — they want to watch them in time period, and the place you can do that, for the most part, is on linear channels … The notion of a communal event still exists largely on linear,” she said.
The pivot comes as linear television is in free fall with more consumers cutting the cord or dropping their cable packages.
Former Disney executive Kevin Mayer, who is advising Iger, said at Yahoo Finance’s Invest conference last month that one upside to linear businesses lies in their profit margins, which are often in the range of 30% to 40%, sometimes more.
“Streaming will really never get to that profitability level,” he said, noting even a profitable streaming company like Netflix (NFLX) will likely tap out at margins in the 25% to 30% range.
Who will be the next CEO of Disney?
Rumors have swirled that internal candidates like Dana Walden and Alan Bergman, co-chairs of Disney Entertainment, or Josh D’Amaro, head of Disney’s parks and experiences division, could be next in line.
Rumors have swirled that internal candidates like Dana Walden and Alan Bergman, co-chairmen of Disney Entertainment, or Josh D’Amaro, head of Disney’s parks and experiences division, could be next in line.
Other possibilities include former employees Kevin Mayer and Tom Staggs, who left the company in 2020 after being passed over by Iger for the CEO role that ultimately went to Iger’s hand-picked successor Bob Chapek. They have since returned to serve as strategic advisers amid ESPN’s streaming transition.
Mayer and Staggs currently run Blackstone-backed entertainment startup Candle Media, which acquired Reese Witherspoon’s Hello Sunshine production company in a deal worth $900 million. Candle also owns Moonbug Entertainment, which produces the hit children’s show “CoComelon.”
Mayer demurred when asked whether or not he’d take the CEO position, telling Yahoo Finance at the Invest conference he had “no obvious answer.”
He did, however, elaborate on why it’s been challenging to find a post-Iger replacement.
“There’s a tradition at Disney that has been difficult to do,” he said. “It’s just hard, especially if you’re a CEO as successful as Bob. I think it pains him to see the company not live up to the standards that he had set forward. So stepping back in was something I think he felt he just had to do.”
He added Iger, along with the board, “will pick a great successor.”
“They have several of them in the company and then people outside the company that they could go to. I think the next one will be a good process.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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