Before Sunday, my plan for this week’s “most important story” was to figure out whether or not America is entering a recession. For real this time, not like in Q3 when everyone was worried that we were in a recession, but then the economy actually grew more than inflation.
(In short, no one can predict the future—including economists—and everyone is too overconfident a recession will happen, but ad spending really is down, likely because of worries about a possible recession, which is leading to layoffs across tech and entertainment, and that could lead to a real recession…and well, stay tuned next week.)
Meanwhile, on Sunday, as I sat down to watch the latest MCU blockbuster in theaters, I got a text from a friend that CEO Bob Chapek was out at Disney, to be replaced by Bob Iger! Given that I think the first Bob was one of the legendary business leaders of our time, I immediately knew this was the most important story of the week.
Before we dive in, to honor the American holiday of Thanksgiving, I just want to give thanks to all the paying and free subscribers to this newsletter. You’ve made the ability to write about entertainment full-time a dream, and I’m incredibly grateful for that.
Most Important Story of the Week – My Wishcasting For Disney
Today’s article is really the second of two parts. When I first started putting down my thoughts on Bob Iger’s takeover, I knew I had enough content that I could replace my written-ahead-of-time-because-of-the-holidays Ankler article to write about Bob Iger. But I wrote so much about what other folks are hoping Iger accomplishes (their “wishcasting”) that I didn’t get to fit in my own recommendations.
(And I don’t usually say this, but if you need my advice, Bob, I’m here. My rates are super reasonable: just bring me some Star Wars swag…)
So what would I do to “turn around” Disney? That’s today’s topic (and one I’ve written about before). Overall, to be fair, the idea that Iger needs to “fix” Disney is a bit overblown, since most of the problems facing Disney are more industry-wide than Disney specific, which I’ll explain next. At the end, after my recommendations, I’ll do a grab bag of thoughts.
Overall, Disney Is In a Tough Spot
Earlier this year, I made a list of the potential trends roiling all entertainment companies. The “beta” risks, if you will. The “worst case” scenarios. And it’s fairly brutal:
– The linear bundle collapses quickly.
– Theaters “die”.
– Streaming never makes money.
– Piracy continues to grow.
– China cracks down on Western media.
– “Aggregeddon”: Bundlers take profits from streamers.
– Renewed antitrust enforcement/Big Tech gets broken up.
Here’s the thing: over 2022, I think each of those scenarios either got worse, the stock market became more aware of them, or they became more likely. Or all three!
All to say, new Disney CEO Bob Iger has a tough road ahead of him. So he could take these fixes I recommend, but things will be tough no matter what. (I’ll write more on this idea in a future article and it’s going to be a big theme for 2023.)
My Strategic Recommendations for Disney
The reason I won’t call these “wishcasts” is because I’m under no illusions that any of them will happen. For example, since Disney actually thought that the best way to add “sing-along” functionality to Disney+ was to simply add lyrics to the full movies, it’s clear that they don’t understand what customers really want. (Based on a recent viewing of Mary Poppins, some of the lyrics aren’t even accurate.) That won’t change with Bob Iger. (I’ve been asking for a better user interface for years now…) If they haven’t figured it out by now, they probably won’t in the next year.
Still, this is what I do to “fix” Disney…
Recommendation 1: Keep ESPN; Sell Hulu
Boom! Right off the bat with some big M&A talk, right? That’s expected since it’s Bob Iger, the king of M&A, back at the helm. At least one podcast speculated that Disney should sell ESPN. (I’ve also heard the Netflix/Apple talk with Disney too.)
But I lean the other way. I think sports are one of the key pieces key things holding back back mass adoption of streaming and, longer term, if Disney really wants to take market share from Netflix, sports is the way to do it. Meanwhile, the next round of sports rights will require linear and digital distribution, which few players can offer. Disney can and is the leader in sports via ESPN, so they should lean into that. In particular, I’d try to grab NFL Sunday Ticket rights.
Of course, their balance sheet isn’t great to be an M&A buyer right now. Disney is just below the leverage ratio (net debt to EBITDA) of “4”, which makes any aggressive M&A from Disney less likely. One way to help balance the scales would be to sell Hulu to Comcast (or someone else). The more I look at Hulu, the less and less I think Disney really needs it. Hulu isn’t global in scale, their niche “originals” don’t move the needle, and they’ll lose the day-after-air TV eventually. Plus, they don’t really need the technology, and could migrate most of the subscribers to Disney+ in the U.S.
However if they do keep Hulu…
Recommendation 2: Lean Into the “Channels” Business
If running a streamer doesn’t make money, running a “bundler”—see my articles on Aggregeddon—just may do the trick. I’ve heard rumors, repeatedly, that the one part of Amazon’s Video empire that does move the needle is their Channels business. Roku and Apple obviously want in on this space too.
The challenge for Disney is they don’t have a device tied to their business, and the device business is expensive. (Even though Amazon’s channels biz may—or may not, we don’t really know—make money, there was a leak that Amazon’s devices biz as a whole loses $5 billion with a B each year.) And very competitive. Still, if you can manage to sell additional subscriptions through Hulu Live TV, I’d figure out ways to turbo charge that biz. (They already bundle Disney+/ESPN+, and sell HBO and Starz subscriptions.)
If you must insist that I offer an M&A buying opportunity, then fine, buy Roku. It’s only $7.5 billion market capitalization right now, so down right affordable. (Though antitrust authorities would likely be upset…)
Recommendation 3: Stop Making Niche Content
As they say, “Content is King.” So you want to turn around Disney? Focus on the content.
If I had to point to one reason Disney’s streaming sector is underperforming, it wouldn’t be Disney+; it would be Hulu’s streaming originals. Compared to Netflix or Prime Video, they’re getting annihilated in the popularity rankings. This isn’t for a lack of trying; they’ve released a lot of shows; it’s just mostly very prestige content made for either people on the coasts, or critics/award voters, depending how charitable you want to be.
Iger should definitely charge Hulu’s development teams with making popular shows. Make shows for the “Average American” as I advocated back in September, meaning broadly popular fare (specifically procedurals, sitcoms, soap operas, etc). And that means avoiding both…
1. Shows made for critics/awards voters
2. Giving creative teams unlimited control.
Which brings me to my next point…
An Aside: Bob Iger Doesn’t “Hate” Data
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