New Disney CEO May Cut Costs to Restore Profits

Bob Iger must show Wall Street a new side to his character as he returns to lead Walt Disney by cutting costs and returning profits just two years after divesting from acquisitions and the last streaming business.

The entertainment giant shocked investors Sunday evening by announcing the firing of Chief Executive Bob Chapek and appointing Iger, 71, to a two-year contract to return the company to growth.

The move sparked other mergers like Steve Jobs’ return to Apple and Howard Schultz’s return to Starbucks in times of crisis.

“Going boldly (Iger’s return) may feel right. However, the business is at a different level of growth,” said PP Foresight analyst Paolo Pescatore, adding that temporary measures may include the banning of some activities.

An immediate target would be Disney+, the streaming service Iger helped found in 2019. The unit’s loss more than doubled in the last reported quarter to $1.5 billion (around Rs. 1,220 crore).

The business has become a drag on earnings as Disney spends more on content to attract subscribers, testing investor patience and contributing to a 40 percent slide in its shares so far this year.

“Disney+ … could do better with fewer regional subscribers made up of big fans willing to pay higher RPU (costs per user), which would generate much higher margins,” MoffettNathanson analysts said.

They also pointed to ESPN as another target for deep cost-cutting, including a review of all future sports rights as the network loses cable subscribers.

Activist investor Dan Loeb’s Third Point also pushed for a possible ESPN acquisition when it took a stake in the company in August, though it later backed off the idea.

Some brokerages also expressed concern about whether the two-year period Iger agreed to return would be enough to turn around the business and find a successor.

“The problem is that Iger can’t stay forever. He’s already had a change from Tom Staggs in 2016 and now (Bob) Chapek,” Rosenblatt Securities said.

Still, Disney shares were up 10 percent in premarket trading Monday, a sign of confidence from the executive who has led the company for 15 years.

© Thomson Reuters 2022

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