When it comes to entertainment companies, Walt Disney (DIS 0.58%) is perhaps peerless in what it has achieved in over the last 100 years. From animation to theme parks, movies, and sports programming, Disney has managed to achieve a level of success that is almost unrivaled. But in recent times, the House of Mouse has seen its prospects dim; in March 2021, Walt Disney's stock was selling for just over $200 apiece, but now it is trading at less than $90 a share.

While Disney's declining market performance may be a concern for some, long-term investors will be watching what the company is doing to turn its fortunes around. So let's explore what the next few years might look like for Walt Disney and whether it still has the magic.

Iger's bumpy return

When Bob Iger returned as Walt Disney CEO in late 2022, it was pitched as an interim measure, with one of his main objectives being to find a successor within two years. But in June of this year, it was announced that Iger was sticking around for an additional 24 months, in part because the company needs more time to find Iger's replacement.

Succession planning is not Walt Disney's only problem right now. The company's Disney+ streaming service has been losing customers for consecutive quarters, and in its fiscal third quarter of 2023, ended July 1, Disney revealed it was down to 147 million global subscribers -- a drop of roughly 5 million the same period a year before. By contrast, Netflix has continued to add subscribers quarter over quarter, including a more than 5 million increase from the second quarter to Q3 2023.

A mission to squeeze more from streaming

Iger discussed Walt Disney's streaming struggles during the company's Q3 2023 earnings call, noting that Disney+ was "not even four years old." Iger also suggested Netflix's strength was in how it had learned to "carefully balance their investment in programming with their pricing strategy and what they spend in marketing." The CEO posited this was something Walt Disney is still trying to figure out.

Of course, a cynic might suggest Walt Disney has been in the content business long enough to know how to do these things, and the content problems it has are because it has overspent (north of $30 billion in 2022) while ostensibly underpricing Disney+ to compete for market share. (At launch, ad-free Disney+ started at $6.99 a month.)

Now, though, Walt Disney is trying to fix its problems. The ad-free option of Disney+ will climb to $13.99 a month in October, and the company has already started cutting back on non-sports content spending by $3 billion. For stakeholders, Walt Disney's moves to extract more value from customers while saving money makes sense.

But the moves are risky. Many of Disney's recent theatrical releases have underperformed, and Disney+ shows such as Secret Invasion have taken a critical drubbing. Simply put, many consumers could decide not to pay higher fees for a perceived decline in Disney+ programming.

ESPN uncertainty

ESPN has long been a cash cow for Walt Disney's cable business, but with that market shrinking, the company is openly considering what the future looks like for the sports network. During the Q3 earnings call, Iger acknowledged Walt Disney's recent decision to partner with Penn Entertainment on sportsbook service ESPN Bet was about monetizing the brand, noting it was good to see Penn "grow their business nicely while we grow ours."

Some, however, believe Walt Disney has bigger plans than just licensing the ESPN name. Analysts at Wells Fargo predict the company could spin off ESPN and network TV brand ABC (which is also struggling) before the end of fiscal 2023. While that could happen, it seems unlikely for the company to drop ESPN -- particularly as there have long been calls for a full streaming version.

Iger noted on the Q3 investor call that it was "not a matter of if but when" a full ESPN offering arrives on streaming. And with the way things are going, it's reasonable to think that could happen before Iger exits the company a second time -- much as Disney+ debuted shortly before he first stepped away.

The long-term bet

Walt Disney seems to know that its content business requires drastic changes -- and that's what will likely play out over the next few years.

Expect to see the company put less onus on Disney+ as the flag-bearer for its streaming ambitions, and instead make it more a two-handed attraction, with full-featured streaming ESPN serving as co-star. And considering Netflix doesn't have its own live sports offering, such a duo from Walt Disney could be welcomed by consumers and investors alike.

That's not to say Walt Disney can't succeed if it doesn't make these moves -- its parks business continues to perform well -- but it surely can't sustain losing cable and streaming customers for too long. Investors watching the stock should keep an eye out for what happens next with ESPN. Once that moves to streaming, Walt Disney could come out swinging.