The Return of Bob Iger

Philip Hernandez: From our studios in Los Angeles and Tampa, this is Green Tag Theme park in 30. I'm Philip and I'm joined by my co-host Scott Swenson of Scott Swenson Creative Development. Of course, this week we have to start with the Big News. We have to talk about Iger and Chapek.

Scott Swenson: Yes, let's address the elephant, or in this case the giant mouse in the room.

Philip Hernandez: Yeah, so let's go get some background here. I mean, I'm sure everyone is aware, but just for posterity's sake. 

QUOTE 

November 20, 2022, The Walt Disney Company announced that Robert A. Iger is returning to lead Disney as Chief Executive Officer, effective immediately. Iger, who spent more than four decades at the Company, including 15 years as its CEO, has agreed to serve as Disney’s CEO for two years, with a mandate from the Board to set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term. Iger succeeds Bob Chapek, who has stepped down from his position.

Philip Hernandez: That is from the InPark article that lays out all the facts of what happened and the statements from everybody. I'll read a few other little bits. Of course, the main objectives that he has here are to turn around the streaming business, really, I think, and, of course, to groom a successor which they mentioned right in that. But it's mainly about streaming, I think. I'm going to read also some excerpts from New York Times coverage. That's basically all that, of course, Disney has said on the topic, they haven't really given too many other reasons why, publicly. I think a lot of people are pointing to this timeline coming right after the disastrous earnings call on the 8th, right? It was just a few weeks prior to that, the big call that a lot of people had talked about. 

Basically, during that call, Disney reported a 1.5 billion loss at Disney+, which is up from 630 million a year earlier, so it's actually higher losses than previously. Chapek said that higher Disney+ production, marketing, and technology costs contributed to the peak losses. They only generated 20.5 billion in revenue in the three months ending in October, which is a 9% increase from a year earlier, but it's still lower than what analysts had expected. They expected 21.3 and it was 20.15, so it's a bit lower than they had expected. 

So, basically, what people were expecting was, on the call, for him to explain that whole thing and blah blah. That's not really what happened, he kind of tried a little bit of gaslighting and tried to focus, oddly enough, what caught my attention was he focused a lot on how well the Halloween party did, and I was like, "yeah!" I was like, "ah it's in my corner!" As a result of that call, Disney shares dropped 12% the next morning, because many people, of course, were shocked by the happy-go-lucky tone that Mr. Chapek struck while discussing the earnings report on a conference call with analysts. "Mr. Chapek’s demeanor struck many as tone deaf, in particular when he started to implausibly talk about how great the response had been to Mickey’s Not So Scary Halloween Party, a relatively inconsequential event at Disney World." [New York Times] This is quoting from the article. "At least one adviser had warned Mr. Chapek ahead of time that his prepared remarks were inappropriately sunny."

Scott Swenson: It's really not inconsequential.

Philip Hernandez: Not in my opinion. Yeah, of course it's not inconsequential. So, basically, if you look at the timeline that happened, the stock dropped 12%, and then a few weeks later we get this. I wouldn't really call it he stepped down, as far as I could tell he basically was fired. His contract will be paid out, so he will be walking around with whatever 20 million or 40 million or something ridiculous amount for his payout contract that was really just renewed in February. 

A few other stats here that are just interesting. I think the reason I'm I'm saying that he's really here to turn around streaming is because streaming is kind of, you know, the horse that they've been betting on recently. But that's going to be difficult, of course, because Disney is loaded with debt, more than $45 billion, both because of the pandemic, and because of the acquisition of Fox recently. Of course, the theme parks have recently been the cash cow because streaming is not performed as well as it should have been recently. 

So, the parks are the cash cow, but as we have talked about a lot that the theme parks are vulnerable, of course to a recession, especially with the price hikes going up these pieces are still vulnerable. It's to be determined how much that's going to play into it? 

Then, of course, creatively recently they have been not doing well, really, creatively. Light Year bombed in theaters, and I'm reading here that Strange World is expected to take about 35 million over the Thanksgiving holiday. Which, it cost 118 it's only going to bring in 35 million, but that's in high contrast to the 2019 numbers because in 2019 the company served up 7 movies that each collected more than a billion dollars, and now we're here with Light Year and Strange World, so that's not been good. 

Of course, the stock price has fallen to 96 from 197 over the last 20 months. So, that also impacts morale at the company, right? Because a lot of the benefits are tied to those stock packages. So, it hasn't been performing very well, but I think maybe if you look at it timeline-wise, you look at the two recent flops in the movies and then you look at the earnings call where he kind of ignored the bigger problems they've been facing, then we arrive here. But Disney kind of gave no official answer for... nobody has really given an official answer for whatnot, and that kind of been relatively tight-lipped so far. I'd be curious to see if that's going to change later. 

Anyway, I'm not sure because, honestly, I'm not sure this is going to impact the parks too much, and I think that's what we focus on, of course, on the show, the theme park aspect of it. I'm not sure it's going to. I just remember the day the news came out, I think almost everyone I knew was celebrating all over. Memes were everywhere, everyone like going bananas about it, and you know, there is reason to celebrate, right? Nobody liked Chapek, clearly, but I'm not sure what our people want to see, the changes that we want to see. We're parks people, right? The changes the parks people want to see are like getting rid of Disney+ getting rid of the reservations you know? Looking at the prices and all this kind of stuff and making it more like it was. 

I'm not sure that we're going to see that relatively soon because I do think the bigger problem here is streaming, the streaming and a successor. We love Iger in comparison to Chapek, but Iger was also not perfect, he clearly did not properly groom a successor, and he had been getting rid of people who were competition. I mean, the reason he didn't have a good successor is because he kept kicking out people that could have been good successors. So, this is kind of his fault. I mean it is his mess, he kind of just stepped in it and then came back to clean it up, hopefully. But I don't really think that we're going to see a lot of these park changes immediately, especially with the struggling monetary situation of the company. I don't know.

Scott Swenson: Yeah, I think it's interesting. I think there are a couple of other factors that have not been covered here. First off, I think, based on hearsay and rumor, so this is not based on any solid art data, but Iger was also looking at the possibility of looking into the world of politics. I think he took his leave to kind of look at that and go, "hmm, this is a bit more muddled than I had hoped."

Philip Hernandez: American politics are a dumpster fire.

Scott Swenson: They are a dumpster fire right now, and I think it was worse than he had anticipated. So, of course, it makes total sense that... I'm going to assume that Disney came to him and said, "please come fix this."

Philip Hernandez: Yeah, that did come out in the reporting, that basically on that Friday before the announcement, so Friday the 18th, some of the board members reached out to him to see if he'd be willing to do it. This is what happened, like this is how short... like Friday it's the board reaching out...

Scott Swenson: Well, this was a boot, this was a kick-out. There's no ifs, ands, or butts. We can say all the nice corporate-ese we want, but this was a, "what do you mean you're laughing at our losses? Get out." This is really the dumbed-down way, which is usually the only way I can understand things, of looking at this. Yes, there are a bunch of subtleties going on in there. Who knows, if you look at if you Iger, two years is a really short amount of time.

Philip Hernandez: It is.

Scott Swenson: Really short amount of time. Even to turn the streaming business around/or to groom a successor, two years is a really short amount of time to get that done. So, I think that these are objectives to help placate the stockholders as opposed to things that I think can truly be accomplished. I think there are things that need to be accomplished, but as you have said, there are some challenges here that I don't know whether we're taking into consideration. The other thing that I want to kind of back out and look a little bit more macrocosm on is, we're talking about how the film side between Light Year and Strange World, let's take into consideration films, in general, are down.

Philip Hernandez: Yeah, Cable's down too, right? They still get revenue from cable, right? And that's these are all pieces of the same puzzle, right?

Scott Swenson: Right.

Philip Hernandez: They were seeing the cable decrease. Movies were their bread and butter, that was their anchor for so long, the creative parts, the studios, that's driven the whole business. So, if that dies, there's a problem, and we're seeing all these different fronts come in on that. Clearly, the creative engine, after some of the key staff members left in 2019, they've been struggling to find their stride again for making good content. Then, they still relied on cable for a long while, and that is shrinking faster than people projected, and then that was the bid, get into streaming. But now, we just saw recently, we reported on it too, where Netflix hit that ceiling right, they lost subscribers for first time ever, their valuation tanked, and everyone was freaking out now. Now people see there's a ceiling to streaming. So now the question is, if your revenue from cables is shrinking, and if the money we're putting into streaming isn't going to get us back what we thought because there's a ceiling to streaming, and if we can't create content that's compelling enough, what are we going to do? 

Scott Swenson: Well, and I think that the thing that people haven't taken into consideration with streaming is, unlike network or even cable, the moment you're in the world of streaming or on demand, your content, you can have an entire series, but the consumer behavior has changed. The moment something hits hot, people sit there and binge it, they watch the whole darn thing, and then they want something new. So, back of the "good ol' days" where you'd produce an entire series that would give you returning visitation for multiple months. Now, you go in, people binge it, they're done in two days, and then they're like, "OK that was great but now what? Oh, Disney+ doesn't have anything else new. Disney+ doesn't have anything else new that I want to watch? OK, I'll go somewhere else, or I'll let my Disney+ lapse." I mean, I've heard over and over and over again with Disney streaming services, people will say, "yeah, I only do it for about two months out of the year." Because they see what they want to see and then they move on.

Philip Hernandez: They have been trying to combat that with the new episode dropping, like Andor and they've been doing the one-episode-a-week type of thing, but to your point, the two-month thing, that's exactly why, because what are there? 8 -10 episodes? They usually come out once a week, that's two months, so you have that. Then you know you'll get the movie drops like Hocus Pocus Two, I think was a big win for them, but also it never made it to theaters right? Then it's just something, if you plan it for two months, you can get all of your Andor in, and you can get your Hocus Pocus Two, and then you could drop it and leave.

Scott Swenson: Right, I mean that's exactly. Let's jump into the Wayback Machine. This is the way cable started. Cable was, you subscribe to us, you subscribe to them, you subscribe to here, then what happened when they realized that was not a sustainable model? We've reported on this briefly in the past, but then they started putting together packages where you would get this, this, and this for X amount of time, and that's what made cable the 40,000-pound gorilla. That changed because all of a sudden, the dim sum approach became appealing again, so you take your Disney+, your ESPN, and your whatever's, and subscribe to them individually. But now, people are getting so fed up with the nickel and diming, I think is the easiest way to phrase it, and the fact that they don't see value in something that they're only watching on a Sunday afternoon, where they can get everything. We also have been trained as a society to know that any sort of digital entertainment is going to be there forever, so we don't have to, just worry about it because we're going to miss it. You know, it's not like the old days of cable where it was like, we got to circle the TV Guide.

Philip Hernandez: Set your DVR.

Scott Swenson: Yeah and set the DVR and get everything ready to go. This is certainly what we all thought we wanted, and now that we've got it, we're using it to its fullest advantage, but it's not necessarily, well clearly at least with this particular case, a 100% sustainable business model. Even with Netflix having hit their ceiling and starting to go down again. So, I think it's unique in the fact that... I think what's unique about it is that no one ever thought this is exactly how cable built and why it went away. Nobody ever made that comparison. I think that's odd.

Philip Hernandez: I think you're right it, and there's a lot, it's such a thorny thing, so I'm so curious to see what Iger is going to do because Iger was the person who drove the acquisitions, right? Who kind of tried to build... The thing is, to your point, like we've talked about the pendulum swinging back, people trying to get rid of less of their subscriptions because they don't use them. One of the solutions to that, of course, is to become large enough so that it's a "must have", right? Like for the longest time people were like, "I have to have Netflix because everything is on there." 

Scott Swenson: Right. 

Philip Hernandez: I mean, I just think the worry with that is that you have Apple, you have Google, you have tech companies that do have streaming, that have inroads into streaming, and they have much deeper pockets than the people that rely on business. So, you know, Apple is already outspending Disney for Disney+. So, it's really again, back to the creative engine. It's really just getting that creative engine fixed, because the money, Apple's already spending more, already. The thing is Disney has a debt, they're not in the as good of a cash position. I'd just be curious to see what the answer is really going to be because the acquisition strategy, I don't think, is going to work. They have too much debt that they couldn't run out and acquire another place.

So, they have Disney+, they also have Hulu and EPSN+, which I think we don't talk about those two as much, but Hulu is the broader focus entertainment offerings, and then EPSN+ is live sports. But the EPSN+ side is also struggling because of the contract renewals. The sports contracts, they're coming and asking for more money, and they're asking for more money because there are other people that are looking at picking up those contracts like Apple, like tech places. So, it might even be an instance where Disney needs to shed EPSN+, or kind of shed some of that stuff and kind of reverse the acquisition trend all that but. 

All the streaming stuff aside the other, the other big thing I see, the bigger problem that I see, which I've talked about this before. I see the bigger problem as TikTok, basically, in essence. We had broadcasts, then streaming came in to leech value out of broadcast, that's still happening, but I think now we have this free content, essentially, that's coming in and that's taking that. You have Twitch, you have TikTok, you have a lot of services that people can, YouTube even, that you can watch for free. We know now that people are spending as much time watching these free services as they are on these paid subscriptions. So that's, to me, the bigger existential threat. Someone that was raised on TikTok, on Twitch, and on YouTube, is going to sit there and watch that for two hours, instead of watching Hocus Pocus 2, because they don't have to pay anything. To me, that's the bigger existential threat to the companies, that continued erosion, because the value for the consumer just isn't there. 

I mean, I just saw it just at Thanksgiving. I was just at Thanksgiving dinner, and we were in the top of the Eiffel Tower restaurant eating Thanksgiving dinner, right? And look over and there's a family eating next to us that had paid for the premier seat so they could see right out into the fountains of Bellagio and everything, and the kids are watching Twitch. They're sitting there with their tablets watching Twitch, like while this is happening. I'm like, yeah, this is what I mean. They're not watching a Disney cartoon, right? They're watching other kids play video games. 

Also, I think about this too with the content that we've been making with our partners and with Sharp, even the video that Scott and I did last week of IAAPA, those things, you can just turn that on your TV now and just watch that. That's user-generated content that doesn't cost the viewer anything, it also doesn't cost the platform anything. YouTube doesn't have to pay Scott and I, it would be nice if they did, to produce the content, right? We do an ad share with them, essentially, but they have to pay us to produce it up front at all. It's the best business model, aside from Apple's business model, which is a monopoly on an app store, this is a pretty good one.

Scott Swenson: Well and it kind of goes back to, somebody said several years ago now, that American Idol destroyed the entertainment industry. I was like, "wow, that's a grand statement," but now. I think we're seeing more and more of that come into play. That was what really cemented reality television, it was not the first reality television, but it really cemented it because it gave agency to the viewer. It created the illusion, whether it was real or not, I don't know, but it created the illusion that the viewer had agency on who is going to win, who is going to move on et cetera, et cetera, et cetera. It trained us to sit there. 

I mean, if you had told me when I was a kid, "hey, do you want to go to the TV and switch it on and watch somebody else play video games?" I would have been like, "that is the dumbest thing I've ever heard," even as a kid. But at the same time, of course, that would have been watching somebody play Pong when I was a kid, so that's a whole 'nother story. But the idea being that, it is more in the consumer behavior, and the shift in that, than in anything being particularly wrong or egregious at this point. I think what more and more focus has to be given to is, how are people consuming content? What are they doing? Not, "if we put it out there, they will come," because that works short term. So, if your job is to go in, hit him hard, like when Disney first started streaming, everybody wanted it, everybody. I mean, it was the hottest thing you could possibly imagine. But as I said, with the consumption going so quickly there's no reason to sustain, there's no sustainability. Yes, I know you're saying that they're trying to combat that by releasing an episode a week. Great, release an episode a week. I will then, after the 10 weeks, start my streaming subscription.

Philip Hernandez: You'll cut it then, yeah.

Scott Swenson: Then I'll go ahead and watch it. I'm guilty of it too. I love, I get so caught up in binge-watching stuff, no matter what platform it comes from. So, I'm like, "no, I want it all now." I have very little patience to wait, "I have to wait another week for an episode? That's ridiculous. I'll just wait, like I said, 10 weeks and watch it all. Watch it on my time."  

So, again, I don't know what the answer is, but I think I think at least the question is how are people consuming our content? And how can we create a model that is sustainable? Maybe the answer is looking to more, taking the phenomenal business model of YouTube, and finding ways to get that onto some of these failing streaming platforms. Is it something that they figure out how to do user-generated content for Disney+. I mean, I know MTV has played around with it and some other "networks" have played around with the idea. But, you know, if that is what people want to see, is there a way to get that into production? Again, I don't know. I don't know whether that's realistic or not.

One of the things that we did talk about is making certain that Disney streaming was sort of the most accessible to the Disney product. What we're learning now is, it's the most accessible, but it's also the least sustainable. People have been going to Disneyland for generations, and they are still going to Disneyland, they are taking their grandkids, and their great, great grandkids, and all that. So, they just keep coming back generationally. It is sustainable because it's not something that you can do every weekend when you kick your shoes off and sit on the couch and go, "I'm going to stream my visit to Disneyland." They keep coming to the Disney resorts. It's that live mentality. 

Maybe the answer is, instead of using the films as the creative engine, start looking into the live experiences, and start looking at the parks as the creative engine. They've dabbled in that a little bit with some of the films that came out about attractions, you know, obviously Pirates of the Caribbean, Haunted Mansion, and all that. Maybe they need to take their pyramid and flip it on its head. I don't know, I don't know. The challenge is, they're putting out good, quality products. Disney streaming is putting a good quality product. The problem is because it's a subscription, a monthly subscription situation, people can decide, "OK, I'm going to subscribe long enough to watch everything I need to watch. Then I'm going to go away for 10 months, and I'll see you in a year." 

Philip Hernandez: Like I said, it's a very thorny subject. I also think, too, overall, from the macro sense, essentially, what we're saying is there's more competition now with the content, right? So, it makes it just more difficult than back in the day, right? You get your cable, you had a locked-in system, and now everyone can make content, and depending on who you are, you are more interested in watching content from the person you know, right? Essentially, except for the bid titles. Anyway, Scott do you think there are going to be any immediate changes in the parks?

Scott Swenson: Again, that would be like throwing water next to the fire, I don't that's going to be...

Philip Hernandez: Right, yeah, That's what I think! Because I'm like, "look people are still going to the park, the events are still selling out."

Scott Swenson: Especially Mickey's Not So Scary, as we heard from Chapek.

Philip Hernandez: Yeah, I was going to say especially Mickey's Not So Scary Halloween Party, right? Not to be glib about it, but Mickey's Christmas Party, I tried to get tickets, it's sold out in Disney World. That's a high-capacity second gate event. I just think, like you said, when you look at them, you're like, "oh streaming’s on fire and our stock prices plummeting. Meanwhile, tickets are selling out in the park."

Scott Swenson: Right? But when you look at the potential revenue generation, obviously streaming is significantly higher, so it creates some worries among stockholders.

Philip Hernandez: So, you don't think anything is going to change in the parks because, essentially, they're doing fine by comparison.

Scott Swenson: I think that you know, even in the articles that you've read and I just kind of breezed through, they all talk about, "what is Iger supposed to do in two years?" And that is turn around streaming and groom a successor. So, neither of those things come anywhere close to the parks. I think the only thing that might change, that might change in the parks is, I think they're going to rethink the reservation system. I think they're going to rethink it, I don't know how it's going to change, I don't know if it's going to change, but I think they're going to address it. Those of us who have multiple friends who are either superfans or employees, cast members, sorry, of Disney, they were thrilled. One of the first thing that came out was, "get rid of these reservations."

Philip Hernandez: I know, I know.

Scott Swenson: I'll tell you right now, I'm one of those people. I have not been back to a Disney Park since they put reservations into play, because it takes all the fun out of it for me.

Philip Hernandez: It's so funny to see everyone we know, like you just said, but like I feel like everybody that we know is like, "get rid of the reservations, change Disney+, change the prices." I'm just not sure how much that's on anyone's radar in terms of like... I mean, I guess it would be a relatively easy fix to change the reservations like it wouldn't take acquiring a new company. These are relatively simple policy changes, but I do think that the overall culture, that's not an easy thing to shift. You can't shift the entire direction of Making Magic back to where it was. That's going to be tougher.

Scott Swenson: But they just did it in the last two years. They just shifted the complete culture from, show up, you can get a front-of-line experience or a shorter line experience, but you don't have to set reservations. I mean, I can't tell you how many people I talked to at IAAPA who said, "well, we have tickets, but we can't get reservations, so we're going to lose the money on our tickets." 

Philip Hernandez: Yeah, yeah, isn't that crazy?

Scott Swenson: I talked to at least five people, anecdotally. That's insane. That is insane. And to separate them? Yeah, this is no longer...

Philip Hernandez: That happened to us recently. It is crazy because you're like...

Scott Swenson: It's the most frustrating place on Earth, it's clearly not the happiest.

Philip Hernandez: Yeah, it is crazy. I think for our sake, and all the people that we know sake, we are hoping that Iger will look at that and say, "you know that's not sustainable in the long run," and you want to keep the parks profitable, so you want to kind of make the fans happy, right? I do think that he is a politician. I do think he's much more of a politician than Chapek. So, I do think that that's what gives me hope. I'm like, they know how unhappy people are and he's a politician, he's going to try. I think he's going to try and do something to make people happy.

Scott Swenson: He's going to try to do something to make people happy in the two years that he's back, and after that two years I would not be at all surprised if he did go into the realm of American politics. I think he's going to let two years kind of settle down, if he can go in and fix this, turn it around, make all the Disney fans happy, and then come back and say, "look, I saved this American institution, now let me save American." think about it. 

Philip Hernandez: Oh god.

Scott Swenson: Think about it. I know that sounds crazy, and I know we're recording this, so in two years let's play this back and see how wrong I am, but it would not surprise me. I'll just say that it would not surprise me.

Well, what does surprise me, however, week after week, is how quickly our 30 minutes goes by. We spent this entire time talking about Disney, Chapek, and Iger...

Philip Hernandez: We had other stories, but what the heck?

Scott Swenson: What the heck, it was still the biggest news. It was still the biggest news and we both obviously had very strong opinions on it. So, hopefully, you got a little bit of insight, information, and whether you agree with us or not, at least hopefully you're talking about it, because that's what we do inside the industry. So, like I said, end of time for now, we will see you next week here on Green Tagged Theme Park in 30.