Retired Disney CEO Bob Iger March 11 told attendees at the media giant’s annual shareholder meeting in Raleigh, N.C., that the company would successfully withstand challenges from the global spread of the coronavirus (COVID-19).
“We’re all sobered by the concern we feel for everyone affected by this global crisis,” Iger said. “What we’ve demonstrated repeatedly is that we are incredibly resilient.”
The executive chairman, who introduced successor Bob Chapek to shareholders, said Disney’s future remains bright.
New Disney CEO Bob Chapek, who was abruptly named to the position Feb. 25, with former CEO Bob Iger transitioning to the executive chairman role, says he’s well-equipped to run the global media brand.
Speaking with Julia Boorstin on CNBC’s “Fast Money,” Chapek said he plans to take the “strategic pillars” Iger established over the past 15 years and further implement them into the direct-to-consumer market.
At the same time, Chapek, who most recently headed Disney’s Parks & Recreation unit, including currently shuttered (due to the COVID-19 virus) amusement parks Disney Shanghai and Disney Hong Kong, said he would be looking “around the corner” for any “disruption” that might be going on in the marketplace that would “necessitate a fresh look.”
“But right now, the course that Bob has laid is one that we fully intend to follow and I think will pay dividends for our shareholders for years to come,” Chapek said.
The longtime executive said ongoing concerns about COVID-19 underscore a “function of our consumer demand” for the Disney product. Chapek said Disney would weather the storm and emerge from the challenge as it has other setbacks.
“[The] affinity for the brand and our storytelling will way outlast any short-term blip that we have from Coronavirus,” he said.
When asked about ongoing cord-cutting among pay-TV subscribers and the growth of over-the-top video distribution, Chapek said his background in home entertainment and consumer products would serve well dealing directly with consumers.
“It’s not ironic that our strategy for the media business now is a direct-to-consumer business, where we have the one-on-one relationship with the customer without having a lot of middlemen in between,” he said. “That’s my sweet spot, and I think that’s something I can leverage now throughout all my experiences, not even Disney but even before Disney, in terms of figuring out how we take the data, the information, the technology and, once again, our storytelling right direct to the consumer so that we can take the great equities that we have and continue to build those for our shareholders.”
Former home entertainment executive Bob Chapek has been named CEO of The Walt Disney Company.
Chapek most recently served as chairman of Disney Parks, Experiences and Products.
Former CEO Robert A. Iger assumes the role of executive chairman and will direct the company’s creative endeavors, while leading the board “and providing the full benefit of his experience, leadership and guidance to ensure a smooth and successful transition through the end of his contract on Dec. 31, 2021,” according to a Disney press release.
In Chapek’s new role as CEO, he will directly oversee all the company’s business segments and corporate functions and will report to executive chairman Iger and the board of directors. He will be appointed to the board at a later date. A new head of Disney Parks, Experiences and Products will be named at a future time.
“With the successful launch of Disney’s direct-to-consumer businesses and the integration of 21st Century Fox well underway, I believe this is the optimal time to transition to a new CEO,” Iger said in a statement. “I have the utmost confidence in Bob and look forward to working closely with him over the next 22 months as he assumes this new role and delves deeper into Disney’s multifaceted global businesses and operations, while I continue to focus on the company’s creative endeavors.”
“I am incredibly honored and humbled to assume the role of CEO of what I truly believe is the greatest company in the world, and to lead our exceptionally talented and dedicated cast members and employees,” Chapek said in a statement. “Bob Iger has built Disney into the most admired and successful media and entertainment company, and I have been lucky to enjoy a front-row seat as a member of his leadership team. I share his commitment to creative excellence, technological innovation and international expansion, and I will continue to embrace these same strategic pillars going forward. Everything we have achieved thus far serves as a solid foundation for further creative storytelling, bold innovation and thoughtful risk-taking.”
Chapek served as Chairman of Disney Parks, Experiences and Products since the segment’s creation in 2018, and prior to that was chairman of Walt Disney Parks and Resorts since 2015.
From 2011 to 2015, Chapek was President of the former Disney Consumer Products segment. Prior to that, he served as president of distribution for The Walt Disney Studios and was responsible for overseeing the studios’ overall content distribution strategy across multiple platforms including theatrical exhibition, home entertainment, pay TV, digital entertainment and new media.
He also served as president of Walt Disney Studios Home Entertainment, where he spearheaded the successful “vault strategy” for the company’s iconic animated classics. They would be released on home video for a limited time before being returned to the “vault,” a practice that led to spikes in demand — and a series of home video sales records.
Chapek also played a key role in transitioning home entertainment from DVD to Blu-ray Disc, characterizing the latter as an “evolutionary” format — a prediction that has come true, as Blu-ray Disc is now the conduit for the latest technological advance in home viewing, 4K Ultra HD.
Speaking on an investor call shortly after the transition announcement, Iger said that even though he has nearly two years left on his contract, the change was being made now because he felt he needed to start focusing on the company’s creative strategy in the wake of the acquisition of the 20th Century Fox studio assets and the launch of the Disney+ streaming service.
“With the asset base in place and with our strategy essentially deployed, I decided I should be spending as much time as possible on the creative side of our business,” Iger said. “That becomes the biggest priority. Getting everything right creatively would be my number one goal. The best way to do that was to turn over day to day management of the company to Bob [Chapek] and free me up to focus on the creative side.”
Disney’s subscription streaming service is coming to Europe and other regions outside the United States. But Lionsgate’s StarzPlay is already streaming Marvel movies in the Middle East and North Africa (MENA) region.
Due to pre-existing arrangements, Marvel superhero titles such as Iron Man, starring Robert Downey Jr., Iron Man 2, Iron Man 3; Captain America: The First Avenger, Captain America: The Winter Soldier, Captain America: Civil War, and Guardians of the Galaxy, Guardians of the Galaxy Vol. 2 and The Avengers: Endgame are all available on the $8.99 monthly service.
Late last year, Disney CEO Bob Iger said the company was considering steps to expedite access to select studio box office titles into retail channels — a move that could shorten the venerable 90-day theatrical window for new-release movies.
No sooner had he said that, Iger reiterated his ongoing support affording exhibitors such as AMC Theatres and Regal exclusive access to movies upon release.
“We have a studio that is doing extremely well and a [release window] formula that is serving us really well in terms of its bottom line,” he said last November.
“The theatrical window is working for this company, and we have no plans to adjust it for our business,” Iger responded.
With upstart Disney+ streaming service getting every original studio release, domestic exhibitors saw a near 7% decline in tickets sold in 2019 compared to 2018.
Iger suggested the analyst’s question was a reflection how other studios are positioning their films and distribution business.
“We’re not the only movie company,” he said. “I suspect that [questions about the window are] not due to us or either a lack of conviction on our part or any suspicion that we might not be telling the truth. It’s working for us, and we have no plans in the foreseeable future to change it.”
Disney is moving ahead with plans to launch the Disney+ streaming service in Europe and India (co-branded with Disney-owned Hotstar) next month. Hulu will have to wait its turn. That’s the portfolio of riches CEO Bob Iger has to deal with.
Despite Hulu having more than 30 million subscribers and being a household name in the United States, Disney is putting marketing muscle behind Disney+ with hopes of generating upwards of 90 million subscribers by 2024. The SVOD service ended Feb.3 with 28.6 million subs.
London-based Goldmedia contends up to 7.6 million consumers in the U.K. have indicated a desire to use Disney+ when it launches there on March 24th.
“We are working up a plan to take Hulu internationally. We actually have a lot of specifics around it. But we’ve decided that the priority needs to be Disney+,” Iger said on the company’s Feb. 4 fiscal call.
Indeed, following the Disney+ launch in India on March 29, the service will expand globally, including Latin America, through 2021.
“We feel that we need to concentrate on those launches, in the marketing and the creation of product for those and then come in with Hulu right after or soon after that,” Iger said.
With rival Netflix’s first-mover status touting 167 million global subscribers worldwide, Disney is spending lavishly to bridge the SVOD divide.
CFO Christine McCarthy said the company’s Direct-to-Consumer & International segment (which includes Disney+, Hulu and home entertainment) is expected to generate about $900 million in operating losses for the current second quarter (ending March 31).
“We expect the continued investment in our DTC services, specifically Disney+, and the consolidation of Hulu to drive an adverse impact on the year-over-year change in operating income of our DTC businesses of approximately $520 million,” McCarthy said.
Regardless, the change in focus contributed to Hulu CEO Randy Freer’s previously-announced departure as Disney revamps the service’s management.
Disney’s high-profile subscription streaming video platform continues to produce subscribers — and costs.
Disney Feb. 4 revealed the SVOD service ended the first quarter (ended Dec. 31, 2019) with 26.5 million subscribers, up significantly from the 20.8 million projected following the service’s Nov. 12 launch. Disney+ generated 10 million subscriptions in the first 24 hours.
“We had a strong first quarter, highlighted by the launch of Disney+, which has exceeded even our greatest expectations,” CEO Bob Iger said in a statement. “Thanks to our incredible collection of brands, outstanding content from our creative engines and state-of-the-art technology, we believe our direct-to-consumer services, including Disney+, ESPN+ and Hulu, position us well for continued growth in today’s dynamic media environment.”
Indeed, Disney+ has almost caught (Disney owned) Hulu, which ended 2019 with 27.2 million subs. Netflix ended the year with 61.4 million domestic subs.
At the same time, Disney’s Direct-to-Consumer & International segment, which includes Disney+, saw revenue increase from $900 million to $4 billion and segment operating loss grow from $136 million to $693 million. The increase in operating loss was due to costs associated with the launch of Disney+, the consolidation of Hulu and a higher loss at ESPN+. These increases were partially offset by a benefit from the inclusion of the 20th Century Fox Film business, and due to income at the international channels, including Star India.
Walt Disney Studios set a record $10 billion in worldwide box office ticket sales through Dec. 8 with current theatrical hit Frozen II — a notable milestone achieved without a “Star Wars” movie or breakout 20th Century Fox title.
Disney in July broke its previous $7.6 billion box office haul. Fox Studios’ theatrical titles topped $2 billion at the box office.
For home entertainment, Disney’s fiscal largess is a gift that keeps on giving despite ongoing consumer migration toward over-the-top video distribution.
Disney titles have historically performed well in sales of DVD and Blu-ray Disc, and more recently in digital sellthrough as well. Despite launching a branded SVOD platform featuring original movies, Disney will continue to stream new releases after their retail window.
And that’s a no brainer when looking at recent movie sales.
Marvel Studios’ Avengers: Endgame is the top-selling disc in 2019, according to VideoScan. Captain Marvel, Bohemian Rhapsody (Fox), Toy Story 4 and Aladdin all rank among the top 10 this year.
It’s a trend Disney Home Entertainment has driven the past four years.
In 2016, Disney led all studios at retail disc sales with Star Wars: The Force Awakens, supported by Pixar’s Finding Dory, Zootopia and Captain America: Civil War.
The next year Disney again topped retail disc sales with Moana and Beauty and the Beast.
In 2018, Disney home entertainment outdid itself, spearheaded by Black Panther, Avengers: Infinity War, Star Wars: The Last Jedi, Coco and Thor: Ragnarok.
Last November, CEO Bob Iger Iger gave a shout out to home entertainment — his first in years — which he said continued to deliver strong retail results in the face of OTT. At the time Iger suggested there was ongoing internal strategy about putting theatrical content into retail channels sooner.
“The home video window continues to be quite important to us,” he said. “You’ll likely see us protect that as well, although there’s going to be discussion around whether there’s an opportunity to move product into that window maybe a little sooner.”
To date, Disney’s 90-day theatrical window remains largely intact.
Less than six months into Disney’s protracted $71.3 billion acquisition of 20th Century Fox Film and related assets, including Fox’s Hulu stake, the mega transaction continues to underwhelm on the bottom line.
Fox Studios generated a $120 million loss for Disney in the most recent fiscal quarter — driven by box office disappointments Ad Astra, Dark Phoenix and The Art of Racing in the Rain, according to CFO Christine McCarthy.
“The loss from the Fox Studio business was $100 million higher than the loss we estimate the business generated on Q4 last year,” McCarthy said on the Nov. 7 fiscal call.
The CFO attributed consolidation of Hulu’s operating losses (about $1.5 billion for fiscal year) and inter-segment eliminations that resulted in an adverse impact to segment operating income of about $170 million.
“We estimate the acquisition of [20th Century Fox] and the impact of taking full operational control of Hulu had a total dilutive impact on our Q4 [earnings per share] before purchase accounting of $0.47 per share,” McCarthy said.
Indeed, Fox generated about $260 million in combined ticket sales from six movies halfway through 2019, which was $100 million less than just the opening weekend of Disney/Marvel’s Avengers: Endgame.
Dark Phoenix had the lowest box office of any “X-Men” franchise movie, which resulted in Disney taking an impairment charge on the film.
The results continue what CEO Bob Iger lamented in the previous quarter about Fox’s performance being “well below where it had been, and well below where we hoped it would be when we made the acquisition.”
And the outlook isn’t getting better anytime soon.
McCarthy expects an operating loss in the current first quarter (ending Dec. 31) of about $60 million at the Fox studio, compared with about $30 million operating income in the previous-year period.
“We estimate the acquisition of Fox and the impact of taking full operational control of Hulu will have a dilutive impact on our Q1 earnings per share before purchase accounting of about $0.30 per share,” she said.
McCarthy remains hopeful the Fox acquisition will be accretive to EPS before purchase accounting for fiscal 2021.
Disney’s high-profile subscription streaming video service is launching in the United States, Canada and Holland on Nov. 12. The platform will be rolled out across Western Europe (United Kingdom, France, Germany, Italy and Spain) on March 31, 2020.
CEO Bob Iger made the announcement during the company Nov. 7 fiscal webcast, saying test runs in Holland had proved successful.
“Even without access to our full library or any original content, the service connected with users across all four quadrants, male and female, adults and kids, driven by the breadth of our content and the affinity people of all ages have for it,” Iger said about the previously disclosed Dutch tests.
He said Disney has spent the last few years “completely transforming” the company through strategic acquisitions [i.e. BAMTech, 20th Century Fox, Hulu] and organizational changes to focus the resources and creativity across the entire company on delivering an “extraordinary” DTC experience.
Disney’s direct-to-consumer segment is projected to lose upwards of $850 million in the current first quarter through ongoing investments in Disney+ and consolidation of Hulu — the latter ending the fiscal year with 28.5 million subscribers.
“We’re making a huge statement about the future of media and entertainment and our continued ability to thrive in this new era,” Iger said.