Major Changes at Walt Disney

All of a sudden, The Walt Disney Company announced that Bob Chapek stepped down as Bob Iger returned to head Disney. Note that it’s been less than a year since he stepped down as CEO. The news caused an uptrend in stock prices as #DIS grew by 6%. Bob Iger led Disney from 2005 to 2020 and agreed to take over the company for two years. For sure, #DIS is in for big changes—reversing a strategic direction to resume growth rather than keeping things going.

In his 15 years as CEO, Bob Iger transformed Disney from a modestly profitable—countered by digital Netflix #NFLX and Amazon #AMZN—into one of the world’s most formidable content and technology companies. Its revenues quadrupled from $2.5b in 2005 to $10.4b in 2019, while its capitalization grew from $48b to $230b. These achievements made him one of the most admired and highest-paid CEOs worldwide.

I.????????????????Bob Iger’s three lessons to learn

1. Quality products matter. Or content is king. Bob Iger had no truck with the notion, expressed by some experts, that content would become commoditized as power shifted irreversibly from creators to distributors. This belief in content helped him buy up more and more favorite franchises, which bordered on recklessness. He headed four projects that turned Disney into the present-day media conglomerate: Pixar in 2005 for $7.4b, Marvel Entertainment in 2008 for $4b, Lucasfilm in 2012 for $4b (outperformed the media empire boss Fox), and 21st Century Fox for $71b (the most ambitious and potentially the most troublesome project). The first three companies brought #DIS $36b in revenue. In late 2019, Bob Iger also rolled out the streaming service Disney+ as one of his latest key creations.
2. Trust acquired talent. In most industries, when a big company takes over a small company, the acquirer’s managers defend their territory and impose a headquarters culture on the acquiree. Instead, Disney—headed by Bob Iger—let Pixar use its in-house animation team. This free-hand approach and respect for what others do helped convince “control freaks” like George Lucas (Lucasfilm) and Isaac Perlmutter (Marvel) to sell their legendary assets.
3. A bit of paranoia can be productive (the most important one). No boss succeeds without supreme self-confidence, and Bob Iger is no exception. But he has shown time and again that he is willing to question his judgment and rethink strategies as the business evolves. When on a visit to Disneyland in Hong Kong, he noted that Chinese crowds preferred the new Pixar characters over Mickey Mouse. As a result, he put aside the Disney legend and began to modernize the company’s roster.

II.??????????????#DIS figures in the last quarter. The DTC segment, including Disney+, posted an operating loss of $1.47b (content costs outpacing revenue growth). The theme park business, which could well have saved the day, rose 36% in revenue and reached $7.4b but did not manage to help total operating profit meet the growth forecasts (margin eaten by inflation). This year #DIS has lost ~40% of its capitalization.

III.????????????My take on Iger’s return

1. It looks like a desperate move. Well, things must be worse for #DIS than they seem. Keep in mind that Bob Iger was the executive chairman for the past two years and thereby controlled Bob Chapek and Disney.
2. It’s impressive that the board of directors made such a tough decision after supporting Bob Chapek publicly. They swallowed their pride and confessed. Bob Chapek was one of the worst CEOs in Disney’s history, taking into account that the last two years were difficult for all companies.
3. It’s good news for #DIS shareholders. But in the long run.