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First of all, I hope you had a great thanksgiving with your loved ones. It is black Friday today and a lot of retailers are offering good discounts to reduce inventories. I hope you will find the product you have been dreaming of and saving for this black Friday. Now back to Disney.

Bob Iger makes a comeback. This article will describe what it means for Disney.

After leading Disney for 15 years Bob Iger took retirement and put his hand-picked choice, Bob Chapek, in charge of Disney. This was an unusual choice considering Bob Chapek was leading Parks and recreation business over Kevin Myers. Kevin was the main contender in the running as the head of the streaming business. K

What happened to Disney under Chapek?

Before I become critical of Bob Chapek’s progress report, you have to give it to him for standing up during the pandemic when no one in Disney wanted to make crucial decisions. He played the hand that was dealt to him. Disney+ is in the growth phase and there will be big costs of production that will be required. Other lines of businesses will have to support Disney+ as it grows.

With that said, Chapek never hit his stride. The pandemic upended Disney’s business. Company culture was in disarray. Per an interview given by Abigail Disney to TIME:

poor behavior on the part of managers toward employees, it triggers poor behavior on the part of the parks around their customers, poor behavior on the part of the channel in the way it treated Scarlett Johansson.

From Barrons:

It’s certainly a surprise, but the problems had been mounting for Chapek, culminating in the company’s weak fiscal fourth quarter earnings earlier this month.. Disney’s direct-to-consumer segment, which includes its streaming services, posted a $1.5 billion loss as investment in content outpaced revenue growth. Its theme parks business, which was meant to save the day, also disappointed as margins were squeezed by inflation. And that’s before a potential recession.

Bob Iger also has expressed displeasure over Disney’s poor performance in the past. It is a well-known fact that since April 2020 Chapek and Iger have not had a happy relationship. Iger was not happy with Chapek’s move to provide his right hand, Karim Daniel, with the centralized budget powers. This step irritated a lot of Disney veteran leaders including Iger.

More than irritating the veterans Disney was really struggling with high operational costs, poor shareholder expectations, and unconditional layoffs.

Let us look at them in some detail one by one:

1. Rising Cost of Revenue

From WSJ:

Walt Disney Co. said it plans to make cuts to marketing and content budgets after the company reported weaker-than-expected fourth-quarter earnings Tuesday, the result of wider losses in the streaming business that offset the strong performance of the company’s theme parks.

Rising costs after Iger’s departure became the true cause of shareholders’ frustration with Disney. This is poor expectation setting by Chapek. If Disney expected a rise in the cost of production based on the schedule Disney had to produce content shareholders should have been appropriately notified.

Soon after the earnings release and the market’s poor reaction, Chapek announced cost cuts, layoffs, and austerity measures. I believe, if this was to be done it should have been done before the earning report and not just two days after. Chapek cost cut move looked more like a reaction to what the market did to the stock rather than a thought-out plan.

DMED (Disney Media and Entertainment Distribution) saw a negative 3% compared to DPED (Disney Parks and Experience and Products) which had a rise of 36%. Overall Disney’s Revenue rose only 9% compared to 2021.

2. Rising Subscription and Theme park ticket prices

It is not a bad tactic from an economic and business standpoint to raise prices. Companies do that from time to time. Netflix has mastered the art of price rises keeping subscriptions constant. However, rising prices kept the beloved Disney fans away from theme parks.

People love Disney, they don’t even look at this as a company. It is something that is part of their lives. It’s generational love. Generational love is an IP that you do not want to lose. Higher costs of a theme park are moving Disney away from their average customer. You want these customers to keep coming back to Disney again and again. As a kid, as a parent, and as a grandparent.

There was change.org petition launched again by Chapek for adding a bunch of costs to the theme park ticket prices. Including a premium FAST pass. This was greediness on part of Disney to blackmail its followers. As I will describe late, you want people to come to parks and build your empire of merchandising sales.

3. What else went wrong

His voice was not forceful against the Florida Gay Law, which ticked off many employees. Disney also got into a high-profile case with Scarlett Johanson over the Black Widow rift regarding her compensation.

Will Iger turn things around?

Let me start by saying I was surprised at the timing when Bob Iger stepped down from Disney. It was Jan 2020. The pandemic was looming and China was already in lockdown mode. It seemed to me that he wanted succession to happen before the pandemic became a global issue. He is a smart man, I cannot digest that there was no role of the pandemic when he decided to step down.

Having said that, I respect Iger as a leader who transformed Disney from where Micheal Eisner left it. He quintupled Disney’s value from $50B to $250B.Under Iger, the company saw amazing growth. He acquired Marvel, Pixar, Lucas Films, and Universal. All of these acquisitions make Disney what it is today.

First order of business for Iger

1. Continue to produce streaming content.

It’s the long tail effect that will define the success of the content in addition to the exponential IP that Disney already holds. I have written in past about Disney’s Moat. In this essay I had written:

Disney builds stories around characters, these characters are IP of Disney. Only Disney can use them for commercial purposes. Cinema and Entertainment industry then broadcast Disney stories/movies to the audience. Broadcasters pay Disney License fees to showcase these movies. This does not stop here like in traditional movies

If Iger wants to put Disney back on its track, he has to start thinking about Disney as a brand that people want to live and love. This is different from just making a movie.

2. Making Disney accessible to common people:

Rising theme park prices and Disney+ may be a good strategy and as a business, you want to do that. As Warren Buffet said

An economic franchise arises from a product or service that: 
(1) is needed or desired; (2) is thought by its customers to have 
no close substitute and; (3) is not subject to price regulation. 
The existence of all three conditions will be demonstrated by a 
company's ability to regularly price its product or service 
aggressively and thereby to earn high rates of return on capital. 
Moreover, franchises can tolerate mis-management. Inept managers 
may diminish a franchise's profitability, but they cannot inflict 
mortal damage.

For parks: Disney needs to do this strategically and in alignment with its customers. For theme parks what irked the customer was the introduction of additional fees like Fast passes, premium entry, etc. Disney was no longer for common people but for those who were ready to pay big bucks to get access to Disney. Disney reduced the accessibility of the park to common people. DISNEY DOES WANT THIS.

For Disney+: Have a defined schedule about what is being launched and when. Build the anticipation. Remember monetary income from Disney does not stop with movies. It begins with movies. Merchandising, theme parks, publications, and broadcasting are where the earnings continue for Disney’s brand.

Disney knows people are willing to pay the price to access beloved Disney characters. It’s like Vegas. Tickets and stays are cheap. But owners know real income is booze and gambling. You need to attract people and they will spend. Merchandising is what will enable Disney to make exponential money from its parks and movies.

3. Some other Initiatives that Iger should take care of

Bring back the culture in Disney where employees are rewarded for good work. Selling stories should be the primary performance driver.

In the end, the only thing I will say is Iger needs to continue with the strategy of investing in the production of new content for Disney+. Get away from rookie CEO mistakes that Disney has committed over the last two years and be open to shareholders and Wall Street about the problems.

Cheers