Bob Iger, just over three months back as CEO of Disney, discussed major organizational changes he’s made at the company — and his optimism about making streaming, particularly Disney+, a profitable piece of the empire.
“I’m generally bullish on streaming as a great consumer proposition, as a really robust platform to deliver high-quality content,” Iger said, speaking Thursday at the 2023 Morgan Stanley Technology, Media and Telecom Conference in San Francisco. He later said, “Eventually, I think everything will migrate to streaming,” including (as he’s said before) ESPN as a direct-to-consumer offering.
But, Iger said, “we have to better rationalize our costs” and “obviously we have to attract more subs.” In addition, he said, Disney+ needs a “pricing strategy that makes sense.”
“In our zeal to grow global subs, I think we were off in terms of our pricing strategy, and we’re now starting to learn more about it and to adjust accordingly.” Iger also said Disney overall had a “disconnect” between what it was spending on content and how it was monetizing that — and that the company needs to become “more judicious” about content investments as production costs have skyrocketed.
Iger’s remarks about Disney+’s pricing indicates the company believes it has room to raise fees, even after the streamer’s ad-free tier increased from $7.99 to $10.99 per month in the U.S. in December. On Disney’s Feb. 8 earnings call, Iger noted that even with the price increase on the core package “we only suffered a de minimis loss of subs… that tells us something.”
Regarding the fate of Hulu, Iger reiterated that the company is continuing to examine whether Disney will seek to buy out Comcast’s 33% stake in Hulu or whether it will look to exit the streamer. “We are really studying the business very, very carefully,” he said. He called Hulu “a solid platform” with strong original programming and library content, which is also a very attractive platform for advertisers. “But the environment is very, very tricky right now and before we make any big decisions about our level of investment, our commitment to that business, we want to understand where it could go,” Iger said.
Iger, previously Disney CEO from 2005-20, returned as the Mouse House’s interim chief executive after the ouster of Bob Chapek last November. At the Morgan Stanley conference, Iger said “succession is pretty much at the top of the list between me and the board” to identify Disney’s next CEO.
“My goal is essentially to leave here in two years with a trajectory… that is very optimistic and positive,” Iger said.
In one of Iger’s biggest moves since coming back, last month Disney said it would eliminate 7,000 jobs in a mass layoff coming as part of an effort to slash $5.5 billion in costs. Disney is aiming for an annualized reduction of $3 billion in non-sports content costs. On Thursday, Iger said that goal is “achievable” although “not right away” because Disney has long-term commitments and that “support from the content side of our business is real and we will deliver it.”
Also last month, Iger reorganized the company into three core business segments — Disney Entertainment, headed by co-chairs Dana Walden and Alan Bergman; ESPN, led by Jimmy Pitaro; Disney Parks, Experiences and Products, led by Josh D’Amaro — dismantling the former Disney Media & Entertainment Distribution (DMED) division. The goal of the reorg, Iger said in a statement, was to “return creativity to the center of the company.”
“The company had been restructured after I stepped down as CEO to create essentially a giant revenue-generating division… [and] it was completely separated from the content side, which is where all the money was being spent,” Iger said Thursday. “I happen to believe there needs to be a direct connection between what’s being spent and what’s being earned. It’s all about accountability.”
Disney’s previous organizational structure also created a disconnect on the marketing side, according to Iger. “We were spending too much marketing platforms, and not enough marketing the programming that was on the platforms, and I think that may have had a negative impact on our sub growth,” he said. Iger also said Disney had a disconnect between what programming it was producing for international markets and the U.S.; as part of the reorg, Rebecca Campbell, chairman, international content and operations, exited the company.
“Now it’s about getting our content pipeline right, making sure that we’re making the right decisions and making sure that we’re making the right number of decisions in terms of how much we’re making,” Iger said at the conference. “And then it’s I think really being mindful of a world that is not getting any less complicated, and in fact that technology only is going to disrupt more, and making sure that we’re positioning those great brands and this great content-generation business in the right way to deliver the kind of value that shareholders need long term.”
Iger previously has underscored that the media conglomerate is focused on streaming profitability — signaling a pullback from Chapek’s heavy investment in content and his push to amass subscribers. In the last three months of 2022, Disney+ lost 2.4 million subscribers, its first decline since launching in late 2019, driven by a 3.8 million sequential decline at Disney+ Hotstar, the version of the service offered in India and parts of Southeast Asia. As of the end of 2022, Disney+ had 161.8 million subscribers.
Under Iger’s leadership, Disney is reevaluating windowing and exclusivity strategies and is considering upping its content licensing deals with other distributors.
“I think it’s already clear to us that the exclusivity that we thought would be so valuable in growing [streaming] subs, while it has some value, wasn’t as valuable as we thought,” Iger said Thursday. “And content can actually exist on the traditional platform and on the streaming platform quite well without doing damage to either one, because actually a very, very audience is consuming [on] those platforms.” He noted that the median age of the audience for “Abbott Elementary” on ABC is about 30 years higher than on Hulu, “so why not have [the show] live on both?”
With regard to Marvel — which has 7,000 characters — what Disney has to consider is not volume of output but “how often we go back to the well with certain characters,” Iger said. “Sequels typically work well for us. Do you need a third or fourth, for instance? Or is it time to turn to other characters?” Marvel will turn back to the Avengers franchise, “but with a whole different set of Avengers,” he said.
On the Star Wars front, Iger noted that the company made two “standalone” films: “Rogue One,” which did well, and “Solo,” which “was a little disappointing to us,” he said. “Solo’s” underwhelming performance “gave us pause just to think maybe the cadence was a little too aggressive and so we decided to pull back a bit. We still are developing Star Wars films. We’re gonna make sure when we make one that it’s the right one. And so we’re being very careful there.” Variety reported Wednesday that Lucasfilm has shelved Star Wars movies from Kevin Feige and Patty Jenkins that were in development, while filmmaker Taika Waititi is continuing to work on his own potential Star Wars feature film.
Meanwhile, Disney’s theme parks and products group saw revenue climb 21% to $8.7 billion and operating income rise 25% to $3.1 billion for the last three months of 2022 — the standout for the quarter. Iger said Disney’s parks are “a great business” that rebounded well post-pandemic, but he said “we may have been a little bit too aggressive about some of our pricing.” Disney has had to reduce crowding in its theme parks while still maintaining profitability — and also keeping its pricing “accessible” to consumers.