There’s no greater drama produced in Hollywood than the rise and fall of top executives at the handful of conglomerates that rule the entertainment business.
Last week, industryites took in a double feature. Less than 30 minutes after word spread on the morning of Feb. 5 that Amy Pascal was out after 19 years atop Sony Pictures Entertainment, Disney confirmed the long-expected promotion of Tom Staggs to chief operating officer, making him the heir apparent to Bob Iger as CEO of the world’s largest media company.
High-level executive shakeups are a constant in the industry. While the developments at Sony and Disney are polar opposite in nature — with one executive descending, the other ascending — they are sure to trigger a domino effect that alters the corporate order.
Management shuffles always bring a large dose of disruption, uncertainty and anxiety, as well as opportunity, as the executive chessboard gets realigned and some players rise while others fall.
There’s no doubt that Disney and Sony are in for a period of upheaval, just like Warner Bros. executives, who endured several years of uncertainty while Time Warner boss Jeff Bewkes decided how to rearrange operations in Burbank, ultimately passing the CEO role from Barry Meyer to Kevin Tsujihara.
Staggs and Pascal’s replacement will navigate a far more complicated and fast-changing business landscape than the one their predecessors faced. The 21st-century Hollywood honcho needs to have the vision and strategic instincts to manage comicbook franchises and special-effects driven spectacles across an array of platforms. Having good taste in material and a rapport with filmmakers isn’t enough anymore — though that certainly still counts for something.
Traditional media models are rapidly toppling across the movie and television businesses. Consumers want to watch content however and whenever they please — and a growing number favor video on mobile phones, a platform that thrives on smaller, bite-sized programming. Younger people in particular aren’t flocking to movie theaters in the same numbers they once did, and digital sales of films and TV shows so far haven’t replaced the financial windfall from the golden era of discs. In a few years, the cumulative size of the U.S. movie audience will be dwarfed by its counterpart in China.
“What you have with the changeover at Sony and the change in direction at Disney is a generational shift,” says media analyst Hal Vogel. “The jobs of the top leaders have changed. They need to have more of a global perspective, and it’s more important than ever that they have a deep financial understanding of how their decisions impact the company’s stock price and balance sheet.”
Disney and Sony aren’t the only media and entertainment players poised for major management facelifts. The long-term corporate structures of Viacom and CBS Corp. are in doubt as the companies’ 91-year-old chairman, Sumner Redstone, faces declining health. It’s been a parlor game in Wall Street in recent months to speculate what will happen when Redstone’s controlling interests in both companies are passed on to a family trust governed by five people, including his daughter Shari Redstone and Viacom chief Philippe Dauman.
“If you look back, every major (management) change, every new leader, has tried to put their own stamp on the business,” says Tuna Amobi, equity analyst at S&P Capital IQ. “We’re coming off a few years of record growth for media companies, with share prices at or near all-time highs, but that could all change. It’s really not a question of if, but when, the digital shake-ups will impact the media business.”
Transmedia exploitation is increasingly the name of the game for squeezing out every available dollar of profit when studios decide to sink hundreds of millions of dollars into developing a property.
Pascal’s ouster as co-chair of Sony Pictures Entertainment and her pending exit was, of course, related to the release of embarrassing and offensive email exchanges in which she made racial jokes about President Obama and took shots at top talent.
But Sony’s film division has long struggled to compete in the big leagues with its studio rivals. Unlike Disney, which boasts Marvel, Pixar and Lucasfilm, Sony lacks the kind of major brands and franchises in its arsenal that excites Wall Street analysts. It distributes, but doesn’t own, the James Bond films, for instance, and it licenses the “Spider-Man” characters. That limits its ability to exploit its Tiffany titles for toys, merchandising and other ancillary opportunities. Part of the issue is that the studio’s corporate parent is a technology maker that has never figured out how to fully integrate the films and shows it produces into its core business as a maker of devices that stream, play and download works of popular culture.
Having a knack like Pascal’s for picking movies and finding rising-star directors is only part of the job of a studio chief these days. David Bank, managing director of equity research at RBC Capital Markets, says the big shifts in how profits flow in from movies and TV shows demand a different way of thinking about production and distribution strategies. Disney has clearly been a leader in navigating markets in transition. So has CBS Corp. under Leslie Moonves, Bank adds.
“It used to be that in film or television, you just wanted a hit. Now you want a hit that has monetizability not just in the current market, but in the future market, and you need to have global appeal,” says the analyst. “It used to be that the first window was all that mattered. I think, increasingly, you’re playing for the 10th window. That’s the challenge that Wall Street sees media executives facing. That’s a unique skill set.”
Each of the frontrunners to replace Pascal brings something different to the table. Tom Rothman, the former Fox studio head and now the TriStar chief, has a deep Rolodex and a penchant for keeping costs in check. Columbia Pictures president Doug Belgrad, who has the kind of financial acumen that Pascal lacked, is a veteran of the Sony lot and is deeply respected by colleagues within the company. And Sony production head Michael De Luca has a shrewd creative sense from his time as a producer of films such as “Moneyball” and “Captain Phillips,” as well as his years shepherding films such as “Boogie Nights” and “Seven” as a wunderkind at New Line during its 1990s heyday.
No matter who takes the reins, the leadership swap at Sony will have a trickle-down effect throughout the office suites on the Culver City lot. “It really is a sea change when you have that big a shift at the top,” notes producer David Friendly.
Adds Dave Logan, who teaches leadership at USC’s Marshall School of Business, and is co-author of the book “Tribal Leadership”: “People tend to build teams that are loyal to them and work in their style. If Sony finds someone who is more buttoned up, people will be swapped out.”
Sony Pictures Entertainment boss Michael Lynton is in no rush to name a successor to Pascal, who will remain in place until May, and then transition to become a producer at Sony with a lucrative four-year deal. Lynton has told associates he plans to take his time figuring out the right management structure, and will select the executive best suited to the job. A decision could take a month or more, which could potentially set up a corporate bake-off between Belgrad, De Luca, Rothman and possible dark-horse candidates. A similar situation at Warner Bros. two years ago led to the stormy departure of studio topper Jeff Robinov and TV chief Bruce Rosenblum after they were passed over for the chairmanship that went to digital guru Tsujihara.
Whoever takes over the reins may do some housecleaning in order to assemble his own team. For Sony, which is still reeling from major layoffs brought about by activist investor Daniel Loeb’s calls for wholesale change, the anxiety level could reach a fever pitch, as talented executives ready themselves to play a grisly game of survivor.
The new structure of Sony Pictures will also take some ironing out. The studio has three different production entities contributing to its annual slate: Rothman’s TriStar, Robinov’s Studio 8 and Pascal’s new, untitled production company. Pascal has yet to decide what kinds of pictures she will focus on, while Rothman, who has lined up projects geared toward adult audiences with the likes of Ang Lee and Jodie Foster, is set to produce up to four films per year. Robinov is independently financed by Shanghai’s Fosun, and has said he plans to make movies from distinctive filmmakers with an eye toward the global marketplace.
Industry observers note that the addition of Pascal to the list of Sony’s big-fish onlot producers is sure to have an impact on that group. Some question whether her well-funded deal will make her the go-to producer for Sony’s biggest movies, causing potential friction and resentment among the studio’s other power players. And while Pascal will soon find herself competing with those producers to get her movies greenlit, one of them just might turn out to be her new boss, which would change the dynamic once again.
On the other side of town, the decision to anoint Staggs as Iger’s heir apparent will have repercussions across Disney in the coming months. Jay Rasulo, the company’s chief financial officer, had been in a horse race with Staggs for the No. 2 slot for years, and now is expected to leave the Burbank entertainment giant. He could land in a top perch at another media company, or one in a related field such as toymaker Mattel, which is hunting for a CEO. Although Staggs was the odds-on favorite for the promotion to chief operating officer, multiple Disney insiders note that Rasulo’s exit will be a big loss for the company, given the esteem he’s engendered among Wall Streeters and his prior experience as head of parks and resorts.
Nothing is set in stone, but the rumor on the lot is that consumer products chief Bob Chapek is the top contender to fill Staggs’ role at parks and resorts. Disney Interactive head Jimmy Pitaro, meanwhile, could step into Chapek’s shoes and consolidate the interactive unit — one area where Disney has had trouble gaining real traction — into the bustling consumer products wing.
As for the expected chief financial officer vacancy, corporate strategy exec VP Kevin Mayer is said to have pole position. And as each division-leader slot changes, there’s sure to be more shuffling of positions underneath.
In setting Staggs on the path to become Iger’s successor as CEO, Disney is betting that the 25-year veteran of the company has the vision required to grow the Mouse House’s expanding universe of lucrative franchises.
Still, Staggs will face a learning curve in his new role, especially in the areas of film and TV. His ascent also comes as Disney is undergoing a top-level shift in the management of its TV assets (other than ESPN), with former ABC News chief Ben Sherwood moving into the Disney/ABC TV Group president post occupied for 10 years by Anne Sweeney. That hand-over alone is sure to mean changes large and small for the TV troops.
At the corporate level, Disney has its hands full over the next two years with the relaunch of the “Star Wars” movie franchise and the opening of its long-awaited theme park in Shanghai. Staggs has overseen the Shanghai push, but Iger has also been intimately involved in the planning for the company’s biggest outpost in China. Industry observers will be keenly watching to see how much room Iger gives Staggs to exert his influence and demonstrate his leadership chops.
A 360-degree focus on management of content and brands has long been part of Disney’s DNA. Under Iger, the acquisitions of Pixar in 2006, Marvel in 2009 and Lucasfilm in 2012 were driven by the desire to fortify the company with gold-plated brands ripe for exploitation in all markets. To wit: Netflix wasn’t a player in original programming in 2009 when Disney scooped up Marvel; today the Mouse is in the midst of a rich deal to produce four original Marvel-branded series for the red-hot netcaster.
“Look at the way Iger has set up the pipeline of content through organic development and acquisitions,” says RBC Capital’s Banks, who adds that the CEO has positioned Disney “to embrace the reality that there will be change.”
But with that change, comes pain.
High-level executive shakeups are a constant in Hollywood. Irving Thalberg, the boy wonder of his era, made headlines in 1923 by bolting from Universal Pictures to work for Louis B. Mayer’s fledgling Mayer Pictures. Darryl Zanuck rode the momentum of a string of hits he delivered as Warner Bros.’ head of production to launch his 20th Century banner in 1933.
The test for the new moguls at Sony and Disney is going to be in their ability to navigate internal waters while also charting a course through the choppy seas generated by a period of historic disruption across the industry. That’s a Hollywood epic in the making, for sure.
(Ramin Setoodeh and Marc Graser contributed to this report.)