After a painful year of Hollywood strikes, heartbreaking job cuts and stock market setbacks, Disney CEO Bob Iger is finally racking up some victories.
While it posted better-than-expected earnings last week, Iger made several announcements designed to keep the Burbank giant firmly ensconced in pop culture: ESPN will unveil a new sports streaming service launching next fall. Disney+ will be the streaming home of Taylor Swift's concert tour film. And Captain America and Baby Yoda could soon infiltrate the hit online game “Fortnite,” thanks to Disney paying $1.5 billion for a minority stake in Epic Games.
Investors who have been worried about Disney's problems are starting to see some relief. The company's shares have risen 20% since the beginning of the year. Disney had its best day since 2021 on Wall Street after the earnings report. On Monday, shares gained nearly 1% to $109.29.
The strong showing could help thwart activist investor Nelson Peltz's Trian Fund Management and a second shareholder, Blackwells Capital Group, who are trying to stage a boardroom shakeup at Disney's annual shareholder meeting on April 3.
“Any chance these activist investors had of success is being buried by 100,000 tons of Disney carbonite,” TD Cowen media analyst Doug Creutz said in an interview after the earnings. “The market likes what it sees.”
On Monday, Disney sent a letter to shareholders touting the “important steps Disney is taking as it successfully executes a strategic transformation of the Company.”
However, analysts said Iger still has a lot of work to do to get the House of Mouse back in order.
“They're not out of the woods yet,” Creutz said. “The question is, can they show sustained growth on the entertainment and sports side of the business?”
Still, Disney is showing that, among Hollywood's legacy film and television studios, it appears well positioned to weather the disruption caused by the shift to streaming.
Traditional rivals, including Paramount Global and Warner Bros. Discovery, have been struggling to maintain their position following Netflix's acquisition of the television industry and the arrival of global giants Apple and Amazon into the streaming space.
Disney's stock rally had more to do with business fundamentals than Iger's announced initiatives, including partnering with Fox Corp. and Warner Bros. Discovery to introduce a new streaming service with more than a dozen channels. legacy cable networks focused on sports, ESPN and TNT, among others. others, analysts said.
Iger's yearlong cost-cutting efforts, including eliminating 8,000 positions, drove the stronger profits.
Financial losses at the streaming services businesses narrowed to $216 million during the most recent quarter, after losing more than $1 billion during the same period a year earlier. Disney reiterated that its streaming business would show profits in September.
“Looking at our results this quarter, we can say with confidence that our strategy is working,” Iger said during last week's first-quarter earnings call.
Disney also revealed that it has secured the streaming rights to an extended version of the concert film from Swift's Eras tour, which will debut March 15 on Disney+. That should help close gaps in the company's programming release process, caused in large part by last year's writers and actors strikes. Disney+ has 111 million subscribers worldwide (slightly less than the previous quarter).
But the strength came from Disney's workhorses: the theme parks, the cruise lines and the consumer products division, which generated a record profit of $9.1 billion in the quarter, thanks in part to improving earnings. economic conditions. The division's operating income rose 8% to $3.1 billion. International parks, including those in Shanghai and Hong Kong, and the Disney cruise line, led the way. National parks, which have raised prices, recorded slightly lower results.
Chief Financial Officer Hugh Johnston, who joined the company in November from PepsiCo, and Iger pleased Wall Street with the news that the company planned to spend $3 billion on share buybacks.
“It finally feels like the company has some financial control, in a way that Disney hasn't felt in several years,” said Michael Nathanson of research firm MoffettNathanson, adding that activist shareholders also deserve some credit.
Disney hopes the market reaction will temper calls from Peltz and Blackwells to change the advice.
Peltz wants to fire two board members (Michael BG Froman, president of the Council on Foreign Relations, and Maria Elena Lagomasino, CEO of WE Family Offices, which serves high-net-worth families) to make room for himself and Jay Rasulo. , a former Disney CFO. Trian owns $3 billion in Disney common stock, accumulated largely by former Marvel Entertainment chairman Ike Perlmutter, who was ousted from Disney last year.
Blackwells, for its part, called Trian's slate “uninspiring.” The company wants to split Disney and nominated three candidates for its board of directors: media veteran Jessica Schell, real estate expert Craig Hatkoff and TaskRabbit founder Leah Solivan.
Disney has asked shareholders to ignore both activist groups and support its slate of 12 board members, including Iger, during its annual meeting. The company recruited Donald Duck's scatterbrained cartoon uncle, Professor Ludwig Von Drake, in a video on votedisney.com to demonstrate that Disney's current board members are up to the job.
Peltz, for his part, is not backing down. “It's deja vu all over again,” Peltz's firm said in a statement. “We saw this movie last year and we didn't like the ending.”
Last week's earnings gave Disney a welcome victory after a recent legal setback. A federal judge in Tallahassee, Florida, last month dismissed the First Amendment lawsuit the company filed against its nemesis in the culture wars: Florida's Republican governor, Ron DeSantis.
Disney has tried to argue that DeSantis-led changes to Florida's land use laws were retaliation against the entertainment giant for publicly criticizing Florida's so-called “Don't Say Gay” law two years ago. (Disney quickly appealed the judge's ruling.)
Disney also faces challenges on other fronts.
The company continues to face the ravages of declining linear television viewership, which has hit ABC and longtime revenue stream ESPN.
Disney is trying to walk a fine line by preserving the lucrative pay-TV package while separately offering products with fewer channels to sports fans who don't want to pay more than $100 a month.
Disney plans to launch ESPN's flagship channels directly to consumers in the fall of 2025. And next fall, the company will contribute its linear sports channels to the as-yet-unnamed streaming service that Disney will co-own with Fox and Warner Bros. Discovery. The companies have not announced a price, but some analysts believe it could exceed $50 a month in an attempt to attract cord-cutters and never-users.
It's still particularly worrying that Disney's film business has struggled, leading Iger to acknowledge late last year that the company had lost focus in the rush to produce content for its streaming services.
“There is a glut of poorer-performing movies, but the company has said it will focus more on quality than quantity,” said Jeffrey Sonnenfeld, associate dean of the Yale School of Management. “That approach is really important.”
The company, during its earnings call, announced that a sequel to “Moana,” the 2016 animated film that Iger said was the most streamed movie of 2023 in the United States, will hit theaters in November. It was originally conceived as a series to stream on Disney+, but the company changed course and decided to release the sequel as a feature in theaters. Several other Disney sequels are also on the way, following strike-related delays.
Ric Prentiss, an analyst at Raymond James, pointed to the partnership between Disney and Epic Games as another way to attract advertisers clamoring to reach the younger demographic.
“If you're going to be a relevant and growing player, you better have the game as your counterpart,” Prentiss said, adding that Disney's goal “is not just to create a game, but to create an environment where people spend a lot of time.” “. time.”
Improving the movie slate, guiding ESPN toward streaming and reducing streaming losses are key.
“Iger is doing well with this stock rebounding after just a year back in the role,” Sonnenfeld said. “A change of course usually takes three years.”
