New Disney chief cuts non-core businesses to focus on streaming push
Broadway version of Frozen, foreign TV channels and a $1bn technology project are some of the ventures being axed as Bob Chapek steps up transformation plans
When Walt Disney announced that it had closed more than 20 foreign TV channels last week, chief executive Bob Chapek looked like he was taking the knife to a big chunk of the company’s international audience.
The move would have been unthinkable a few years ago. But Mr Chapek – less than six months after succeeding longtime boss Bob Iger – is using the Covid-19 crisis to transform Disney much faster than expected, all with an eye toward making the company an online juggernaut that reaches far more people worldwide.
Besides scrapping the networks, he shut down a musical version of the animated film Frozen that opened with much fanfare on Broadway two years ago, closed a chain of English-language schools in China, and scaled back a $1 billion (Dh3.67bn) resort-technology project that has largely been replaced by a simple mobile-phone app.
“He’s going to be looking in every corner where they can save money,” said Dave Heger, an analyst who follows the company at financial adviser Edward Jones and recommends buying Disney stock. “Considering what Disney is dealing with, he’s the right guy to have at the wheel.”
With the global pandemic crippling Disney’s theme-park, movie and TV businesses, Mr Chapek’s first months at the head of the world’s largest entertainment company have been anything but a honeymoon.
The broad-shouldered, 61-year-old Indiana native jumped in with characteristic zeal, making big changes to cope with the crisis and the tectonic forces reshaping the company’s core businesses. The decisions came large and small. Disney shuttered its theme parks in March, anchored its cruise ships and furloughed some 100,000 workers. Revenue slumped 42 per cent in the last quarter, hurt by the closed businesses and loss of advertising sales at networks like ESPN and ABC.
But the biggest strategic shift is unquestionably Disney’s push into online video. Mr Chapek provided a clue to what was coming in June, when the company said it was removing the Disney Channel TV networks from pay-TV systems operated by Virgin Media and Sky in the UK and putting the programming on the new Disney+ streaming service instead.
It turns out that was part of a much broader move announced last week – affecting many of the people who see the company’s programming outside the US.
The company shut down more than 20 international channels, took a $4.9bn charge against earnings and will instead expand its worldwide streaming operation. Mr Chapek introduced a new online service using the Star brand internationally that will feature content from Disney networks like ABC and FX.
He also said he’d make Mulan, the live-action remake of the 1998 animated hit, available to purchase for $30 on the Disney+ service at the same time as it is released in cinemas.
“Like many companies, we’ve had to find innovative ways to conduct our business during the pandemic,” Mr Chapek said on an earnings call. “While we view this as a devastating situation for everyone affected, it’s also forced us to consider different approaches and look for new opportunities.”
Disney shares plunged in February and March as the pandemic hit business after business, but they’ve staged a comeback. After hitting a low on March 23, the stock is up more than 50 per cent.
Since joining Disney in 1993, Mr Chapek has risen up the ranks, finding new ways to squeeze additional profit from the company’s many businesses. At the home-video division in the 1990s, he worked on the “vault” strategy, where classic Disney films were released only occasionally on videocassette and later DVD, often with extra features that enticed customers to buy them over and over again.
As head of consumer products, he let go dozens of workers and restructured the operation around big franchises, just in time to see the explosion in demand for Frozen dresses and related merchandise. Given command of the theme parks in 2015, Mr Chapek introduced variable ticket pricing, lifting admission to as much $159 a day, and brought alcoholic beverages to Disneyland, along with the new Star Wars-themed lands that opened last year.
Walmart chief executive Doug McMillon said he can remember touring stores with Mr Chapek and coming away impressed by his customer focus and creativity. “He’s someone who invests the kind of time and energy it takes to get into the details of a business and really understand it,” Mr McMillon said in an email.
Mr Chapek pushed hard for new projects in Disney resorts, such as a totally immersive Star Wars-themed hotel in Florida and an Avengers-inspired area that was supposed to open in California this summer. With the pandemic, he’s reduced capital spending by $700 million this year.
In his rise to the top, Mr Chapek saw off other contenders, including the likeable former chief financial officer and parks chief Tom Staggs and the hard-charging dealmaker and former corporate strategist Kevin Mayer.
In an interview in February, Mr Iger, 69, said he thought the time was right time for a transition, with the company completing its $71.3bn acquisition of Fox’s entertainment assets and launching its big family-focused streaming service. Having assembled that massive collection of entertainment properties, he wanted someone to make sure it ran efficiently.
“I really needed to turn over the reins to Bob, to someone else so that they can essentially run the company from day-to-day and free me up to do what I think should be the priority at this point,” Mr Iger told Bloomberg TV’s Emily Chang.
Mr Iger’s official role as executive chairman is to oversee creative endeavours at California-based Disney. He’s done some of that, helping to get a version of the Broadway show Hamilton filmed and on Disney+ on an accelerated timetable and negotiating with the National Basketball Association to host the rest of its season at a Disney facility in Florida.
But Mr Chapek is beginning to move out from beneath Mr Iger’s shadow. The ex-chief executive wasn’t even on Disney’s last earnings call with analysts – a surprise to some who expected Mr Iger to maintain a tight hold on the company.
With the pandemic still raging – and film and TV production only starting to come back – it’s still too early to say what the Chapek era will look like. Jeffrey Sonnenfeld, a management professor at Yale University who has followed Disney for years, noted that Mr Iger was dismissed early in his 15-year tenure as a suit without any creative chops. Disney’s new boss may yet overcome a similar image today, he said.
“You get a sense they really know what they’re doing, that they’ve got a plan,” Mr Sonnenfeld said. “There’s just an infectious enthusiasm from a guy who’s not a backslapper. It’s the classic tough act to follow and he’s doing a magnificent job.”
Updated: August 12, 2020 11:24 PM