Walt Disney (DIS +1.38%) is doubling down on Bob Iger. The media giant is extending his CEO contract through the end of 2026, less than eight months after bringing him back on his initial two-year contract.
Giving Iger more time was inevitable. I predicted back in December that he would be extended in 2023, and the chatter began picking up momentum earlier this month. It's the right call, despite Disney shares trading 2% lower since his return to the helm was announced. Let's dive into some of the reasons why Iger is now contracted to lead Disney for the next three and a half years.
NYSE: DIS
Key Data Points
1. Fixing Disney+ could take time
Iger made it his initial priority to turn Disney's direct-to-consumer streaming business around, a segment that posted an operating loss north of $4 billion in fiscal 2022 and has bled nearly $1.5 billion through the first six months of fiscal 2023. He's cutting costs across all of Disney, but a lot of layoffs and $5.5 billion in annual savings are geared at turning its streaming segment profitable by the end of next year.
It won't be easy, especially with content costs being a big part of the makeover. Can you attract more subscribers at higher price points with less content? With growth stalling domestically and sliding sequentially in India, this is no longer a question of getting out of the red. Disney+ needs to see a green light, too.
Image source: Getty Images.
2. Animation needs to be reanimated
Elemental topped $100 million in domestic ticket sales this past weekend. Disney's latest theatrical animation release is tracking closely to last year's Lightyear and comfortably ahead of Strange World. It has now exceeded $250 million in box office receipts internationally, but it's not the hit that Disney investors were accustomed to at a healthy cadence.
Disney may regain its winning ways come November when Wish hits theaters. It may even be the studio's biggest hit since 2019 -- the bar has been low on this side of the pandemic -- but it will take a couple of winners to prove that it is over its batting slump. Iger sticking around gives it more time to put a winning streak together for the art form that put Disney on the map 100 years ago.
3. Putting success in succession planning
After the poorly executed baton handoff in 2020 when Bob Chapek took over for Iger, Disney needs to make sure that the family entertainment behemoth's next CEO will last. The departure of CFO Christine McCarthy last month was a surprise, largely because many had viewed her as a potential successor.
Giving Iger more time improves the chances of finding a capable new leader. It also gives Iger more time to make sure that the corner office is as turnkey as possible.
4. Disney World needs an "Epic" response
Disney operates the world's most popular theme parks, but the competition is about to heat up in its largest market. Universal Studios parent Comcast is busy building up Epic Universe, an entire new theme park a stone's throw from the Universal Orlando resort and a couple of I-4 exits away from Disney World.
Epic Universe will open in 2025 with an ambitious slate of thrill rides in richly themed lands based on iconic intellectual properties. It will draw guests to Central Florida, but this time the focus of family vacations will not be Disney. There needs to be a response, and it might very well be the long overdue fifth theme park at the House of Mouse. The last non-waterpark attraction that Comcast opened -- Islands of Adventure -- made its debut 13 months after Disney World's last gated attraction unlocked its turnstiles.
Can Disney complete a new park from scratch in time to siphon visitors away from Epic Universe by 2026? No. However, it can have one in place. In the meantime, it can make sure that the concept art it unveiled at a fan expo in last summer with a sizable expansion at the Magic Kingdom and a major upgrade at Animal Kingdom are made official and open in 2026 and 2025, respectively.
Iger couldn't have left at the end of 2024. He would've repeated the same mistake he made the last time he stepped away, handing the keys to Chapek just weeks before its theme parks, cruise ships, and theatrical distribution would shut down for months in light of the COVID-19 crisis. Leaving months before the opening of Epic Universe would've been an "epic" mistake.
5. There's too much unfinished business
Some of the macro things weighing on Disney right now should be resolved by the end of next year. The current weakness in the advertising market, escalating strikes shutting down Hollywood production, and even recessionary fears should be licked well before Iger hits his two-year anniversary as a boomerang CEO. The same can't be said about other challenges.
Disney's live-action films are faring better than animation, but it's still not the hit factory it was back in 2019 when it dominated the local multiplex. Its media networks division continues to suffer the slow bleed of cord-cutting. New cruise ships are on the way, making Disney more susceptible to the next industry setback.
There's just too much to do. Turning Disney around will be a marathon, not a sprint. There are a lot of moving parts to this media stocks bellwether, and all of those parts aren't exactly moving right now. This was never going to be a job that could've been done right on a two-year egg timer.
