- Analysts are expecting another tepid quarter when Disney reports earnings on Wednesday.
- The company is facing a bevy of challenges affecting its streamers, ESPN, and long-term leadership.
- Insider spoke to analysts and experts about what they hope to hear CEO Bob Iger address.
The Walt Disney Co. is confronting a bevy of challenges as it prepares to release its second-quarter earnings on August 9 — not least of which is figuring out who’s going to run the company long-term.
Longtime CEO Bob Iger returned in November to the top job at the entertainment giant, ousting the short-lived ex-CEO Bob Chapek. When Iger came back, Disney said his stopgap tenure, meant to be a reset for the company, would last just two years. But, as many suspected might happen, Disney last month announced that Iger would stick around for an additional two years beyond his initial contract, leaving him poised to step down in late 2026.
That gives him plenty of runway to try to steer Disney to more stable shores after the inevitable conclusion of the ongoing writers’ and actors’ strikes roiling Hollywood — labor movements he recently criticized for “not realistic” considerations on the part of the strikers.
For Disney, Iger’s return was a doctor’s-orders scenario. The veteran corporate leader has implemented a series of controversial decisions to try to right the ship, like slashing 7,000 jobs to save $5.5 billion in costs.
One former Disney employee who lost their job this year told Insider under the condition of anonymity that, under Iger 2.0, morale had taken a hit and the layoffs were felt by many to have been hastily implemented.
“When you see the things that got cut and what you imagine the rationale must have been, it seemed ill-thought-through,” this person said.
In spite of his moves, the company continues to face hurdles like a lagging share price that’s down more than 20% over the past year. “There’s a lot of work to be done,” Iger said last month in a statement tied to his contract extension.
To Peter Csathy, chairman of Creative Media and an M&A advisor, Iger’s return and contract extension ultimately are to make a transformative move — which he believes is to sell the company. Csathy sees Apple as the most logical buyer, but isn’t counting out private equity as a buyer of parts of the company, either. Tom Staggs and Kevin Mayer, former top Disney execs who have reportedly been advising Iger in recent weeks, are backed by PE giant Blackstone through Candle Media, the company they founded in 2021.
“What is the long game for any pure-play media company in a world where we have tech-driven media companies that are much larger than any traditional media company and have fundamentally different business models?” Csathy said. “Even mighty Disney has been overshadowed by these tech-driven media companies whose resources are so much more massive.”
From the future of ESPN and Disney+, to the potential sale of TV and linear assets, to the all-important “s-word” (succession), industry experts and analysts told Insider there are three key questions they’re hoping Iger will address Wednesday.
A Disney spokesperson declined to comment on this story.
How can Disney get its flagship streamer, Disney+, to profitability?
One of Iger’s first steps since returning to Disney was to reorganize the company into three divisions: entertainment (television, film, and streaming properties ranging from Disney+ to ABC), parks (theme parks, cruises, and merchandise), and sports network ESPN.
He’s also charged with getting Disney+ to profitability by next year.
Wall Street bank Evercore is looking for Disney+ to announce Q2 results in line with the previous quarter, when subscriptions declined 2% and losses reached $659 million, equity researchers wrote in a July 23 note ahead of earnings — but they warned that plans for increased marketing could drive losses higher. Evercore predicts layoffs at at the streamer could be ahead, beginning in the fourth quarter.
Paul Verna, a principal analyst at Insider Intelligence, told Insider that whether the company is still on target to meet its stated timeline for profitability — the end of fiscal year 2024 — “is a big question.”
“If Disney doesn’t either revise or confirm that target, obviously investors are going to ask more and more heated questions the closer that time gets,” Verna said.
Both Verna and David Heger, a senior equity analyst covering media at Edward Jones, said the ongoing writers’ and actors’ strikes have provided a moratorium in the development of new content at Disney and other media companies which has, in a roundabout way, likely created a welcome opportunity for cost savings. Nevertheless, short-term expense reductions derived from the labor stoppages are by no means a panacea for Disney+’s profitability woes.
In a bid to reach profitability, Heger said Disney+ could consider raising subscription prices (its current $7.99 per month fee makes Disney+ significantly cheaper than some of rivals’ tiers, like Netflix), as well as assess incorporating advertisements to augment revenues collected from selling memberships to consumers.
Iger has said he was committed to fully owning Disney’s other streamer, Hulu — and buying Comcast’s remaining stake — to help make Disney’s streaming business profitable. That raises the question of how quickly a deal could get done and if Disney would include Hulu in a potential sale of its TV and cable businesses, LightShed Partners wrote in a note on August 4.
ESPN is another big source of uncertainty. Iger has previously said the company is seeking partnerships to help the sports network transition to a DTC streaming model. But speculation continues to swirl that Disney might be better off simply selling the sports property altogether, given the challenge of making a streaming sports service that’s compelling enough to fans to succeed, as well as continual increases in the cost of sports rights.
Will Disney sell TV assets like ABC? And who could buy them?
Iger stirred speculation in July about who could buy Disney’s TV and cable businesses like ABC and National Geographic when he told CNBC that those no-growth businesses “may not be core” to the company and that it would look “expansively” at opportunities for them.
Heger said Iger’s comments may have been a signal to shareholders that “everything was under consideration, or there was nothing that would be off-limits.” But, the analyst added, it’s difficult to know who the right buyer for such assets could be.
Industry watchers have focused on private-equity firms as likely buyers of Disney’s TV assets. LightShed Partners doubted that Disney would find a buyer willing to pay a compelling price for its TV assets (without ESPN) and predicted Disney would instead spin them off into a separate entity. Whatever happens will speak to whether Disney wants to stick to its family-focused roots provider or sees itself as a general-entertainment player, with Hulu; Iger has gone back and forth in his comments on this front over the past year.
Verna told Insider he was skeptical about the notion that private-equity firms — which aim to acquire, fix up, and then sell businesses, usually after a few years — would want to scoop up Disney’s TV assets. After all, the linear TV business is under siege, so it’s unclear whether such investments would be a smart play over the long term.
“When you’re buying into a business that is suffering not because of any mismanagement, but just because the whole industry around it is dwindling,” he said, “I don’t see the upside for a private-equity deal, nor do I see the upside for any competitor to come in and buy it.”
Along with the ongoing decline of linear TV, it’s been a weak upfront TV selling season, and Evercore said in its July note that it reduced its earnings estimate for Disney by 11% in part due to weaker linear advertising.
The S-word: Who’s going to prevail in Disney’s succession saga and be its next CEO?
Perhaps the question with the longest-term implications for Disney is who will lead it after Iger’s second tenure ends.
The race is heating up, with front-runners viewed by many to be the co-chairs of Disney’s entertainment unit, Dana Walden and Alan Bergman, as Insider has previously reported. In late July, the succession saga received an unexpected twist when the news organization Puck reported Iger had tapped former top Disney execs Kevin Mayer and Tom Staggs to consult “on the future of the linear properties” like the company’s TV assets and ESPN.
The two former Disney bigwigs were previously CEO contenders themselves. Staggs, who formerly served as Disney’s CFO, COO, and top Parks boss, left the company in 2016. Mayer departed in 2020 to lead TikTok for a handful of months. Both now work together at Candle Media.
For the two Disney veterans, Heger speculated their return might amount to a “trial run of sorts.” If Iger is seeking their counsel, “could it position one of them to be a contender?” he asked, adding that their unexpected recruitment could have been “somewhat disappointing” for internal figures thought to be in line for the throne, like Walden and Bergman.
But rather than placate investors’ anxieties about Disney’s future, both Heger and Verna said Iger’s two-year extension might only exacerbate them. It suggests the company has no clear contender to whom he could pass the torch.
Verna said naming a successor too soon could spell other troubles — like sidelining Iger as a “lame duck” or ruling out other possible contenders — but added: “You do have to be transparent about the process, and I don’t think they have been.” One antidote he proposed would be giving shareholders more insight into the behind-the-scenes machinations, like touting if Disney has brought on a search firm, or Iger committing in no uncertain terms that he won’t stay on beyond 2026.
“If there’s kind of a wishy-washy answer to that question,” Verna said, “then people would be right to wonder: ‘Is this guy for real?'”
Are you a Disney insider? How is company culture under the second tenure of CEO Bob Iger? Do you have other insights to share? Contact these reporters. Reed Alexander can be reached via email at [email protected], and Lucia Moses can be reached at [email protected].
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