Disney CEO Bob Iger is putting a singular focus on operating costs companywide as media companies re-evaluate existing “all-in streaming” business strategies that have led to skyrocketing fiscal losses and cooling subscriber growth, including a $1 billion loss at Disney’s direct-to-consumer digital segment in the most-recent quarter.
Speaking March 9 at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco, Iger, who prefaced his renewed business outlook by claiming to be bullish on streaming, said the company has to figure out SVOD pricing in order to justify ongoing spending.
Iger in February announced companywide job cuts totaling 7,000 as part of an effort to reduce operating costs by more than $5.5 billion.
Calling streaming video the “ultimate” a-la-carte entertainment proposition, Iger said the ease with which consumers can jump and switch between streaming platforms at minimal or no cost has to be rationalized when it comes to subscription pricing.
“In our zeal to grow global subs, I think we were off in terms of that [too low] pricing strategy, and we’re now starting to learn more about it to adjust accordingly,” he said.
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When asked about the status of Disney’s majority stake ownership of Hulu, and opportunity to buy Comcast’s remaining 33% stake for a minimum $27.5 billion in 2024, Iger said the current “very tricky” economic environment informs Disney’s future plans with Hulu.
“Before we make any big decisions about our level of investment, our commitment to our business, we want to understand where [Hulu] could go,” he said.
In addition to growing digital subscribers across Disney+, ESPN+, Hulu and Hulu+ Live TV, Iger says renewed focus on platform content spending and distribution has to be put on the table and out of the streaming basket.
Indeed, when David Zaslav became CEO of the new Warner Bros. Discovery media company, he was surprised to find that 60% of the content on HBO Max was not being viewed. That’s a reality apparently not lost on Iger, who abruptly replaced his successor — and big streaming champion — Bob Chapek late last year in part because of ballooning streaming costs and losses.
While admitting Disney+ will not see the “meteoric” subscriber growth experienced upon launch in late 2019, Iger contends the platform remains relatively new in international markets, excluding India, which comprises more than a third of all Disney+ subscribers.
The CEO criticized his predecessor’s business restructuring that he called, “basically a giant revenue-generating division,” that separated distribution, advertising, sales, subscriptions, etc., from content creation, where Iger said all the money was being spent.
“I happen to believe there needs to be a direct connection between what’s being spent and what’s being earned from a revenue perspective,” he said. “It’s all about accountability. It’s about understanding the marketplace, so when you make decisions on spending, it’s tied directly to revenue generation and vice-versa.”
Iger claimed too much was being spent on marketing platforms and not enough on marketing content and programs.
“That needed to be put back together not just for sanity purposes, but also because there are opportunities to reduce expenses,” he said.
“I don’t think it was as efficient as it could have been … or as targeted as it should have been,” he said, in relation to the $3 billion in content spending cuts. “The emphasis needs to be on quality of content, not volume.”
As a result, in addition to delegating operational, marketing and financial responsibilities to business segment senior executives, Iger wants to revisit distributing content across all channels, including legacy home entertainment.
Disney reported a Q1 operating loss of $212 million on revenue of $2.46 billion in its “content sales/licensing and other” segment, in part due to a dearth of home entertainment releases. The decrease in home entertainment results were due to lower unit sales of new release titles, reflecting fewer releases, and catalog titles.
Iger believes the push toward streaming theatrical titles undermined the licensing and retail businesses.
“Home video, at one point as we called it, was extremely lucrative for our company,” Iger said. “We’re looking at all of that [again].”
The CEO believes content can co-exist on traditional distribution platforms and streaming without damaging either due to differing platform audiences.
“It’s already clear to us that the content exclusivity that we felt would be so valuable in growing subscribers was not as valuable as we thought,” Iger said. “While eventually everything will migrate to streaming. We’re not there yet.”