Bob Iger returns to Disney as CEO once again. IMAGE CREDIT: ANGELA WEISS -AFP - GETTY IMAGES
This week, the bitter proxy battle between activist investor Nelson Peltz and Disney's board of directors culminated, but it's easy to forget that in the gripping drama of the battle for control of Disney, in the midst of personal attacks on both sides, the proxy battle can be nothing more than a distraction for CEO Robert Iger, and it can be quite time-consuming and labor-intensive. At a time when the entire traditional media and entertainment industry is under unprecedented threat of competition from tech giants and their disruptive technologies, Robert Iger is at the helm of Disney.
In terms of their past performance, we've proven that Peltz and Disney CEO Robert Iger are very different. Peltz is one of the longest-performing activist investors and has long been a shareholder sabotage on boards, while Egger has outperformed his media peers by a wide margin, generating more than $160 billion in value for shareholders during his two terms as CEO, and Disney is the best-performing stock in the Dow Jones this year.
Looking beyond his past performance and looking to the future of Disney, Iger has done more than keep Disney running: he's written one of the most remarkable turnarounds and transformations in the history of the media and entertainment industry. A closer look at Robert Iger's strategic roadmap for Disney's growth across business lines over the next decade reveals that if there's one traditional media company that stands out in the streaming era and achieves higher profitability than traditional linear and cable businesses, it's Disney.
Streaming: Because of Iger's foresight, Disney has a first-mover advantage over its traditional media peers
More than a decade ago, Robert Iger was one of the first media executives to foresee the imminent decline of the traditional "linear bundle." Observers unfamiliar with the media business may not be able to understand how lucrative linear bundling can be for traditional media companies, which receive unexpected ad revenue from advertisers in addition to the "transmission fees" they receive for delivering content to cable subscribers. But with the popularity of streaming and the emergence of cord-splitters, more and more subscribers are canceling cable TV packages, which has led many media analysts to believe that the linear bundle business model is heading for a long-term decline.
Unlike some of its media peers who have been disrupted and unbalanced, Iger strives to be a disruptor, proactive, and ready for a world where linear business is no longer as strong as it used to be, and is still investing early in the transition from cable to streaming. While numerous critics say Disney is unlikely to succeed in launching a streaming platform, when Iger launched its flagship Disney+ streaming service in 2019, it had 10 million subscribers on day one alone, and 100 million in the first 15 months before Iger left office.
Egger has been preparing for the launch of Disney+ for years, acquiring a stake in streaming technology company BAMTech in 2017. Thanks to Iger's foresight and foresight, Disney was far ahead of its traditional media peers in transitioning from a linear business to streaming, bringing in billions of dollars more revenue than its traditional competitors. In addition, Disney's streaming platform has more total subscribers than all of its traditional media peers combined, with Disney's streaming platform reaching 190 million subscribers worldwide (compared to less than 100 million subscribers on the Max platform operated by Warner Brothers Discovery; Paramount+, which is owned by Comcast's NBCUniversal (NBC). Universal) operates Peacock, which has about 30 million subscribers, and dwarfs the much-hyped Apple TV, which has 25 million subscribers).
While Netflix still holds the lead with about 250 million subscribers, Disney is growing so fast that even Netflix admits that "the duel between the two of us will continue for a long time."
Despite the huge differences in stock market valuations, Disney has many huge advantages that Netflix doesn't have, including a historic database and more time-bound franchises, synergies between consumer products, parks and resorts, and a real advantage of scale.
Disney's total net revenue last year surpassed Netflix's, and its revenue base was three times that of Netflix. Not to mention Disney's creative engine, which is still unbeatable when it's running at full speed: some may be surprised to learn that in 2023, the first year of Iger's return, six of the 10 most trafficked movies on any streaming platform in the U.S. belong to Disney.
Streaming: There is still exponential potential for revenue growth in the future
Despite Disney's success in subscriber growth, many analysts worry that the monetization opportunities presented by the streaming era will never catch up with the windfall profits that media and entertainment companies are making from traditional linear/cable bundles, and that revenue growth will be unsustainable in the face of shrinking profit margins. However, it may be too early to ring the death knell for the profitability of the media and entertainment industry. Obviously, the streaming business is still in the early stages of development. In fact, Iger was the first to admit that streaming is still an "emerging" business for Disney, and while Disney has only been in streaming for four years, it's still learning in real-time and adjusting accordingly in the arms race.
Iger has made significant improvements to Disney's streaming business, including cutting expenses and adjusting the pricing structure appropriately to position the streaming platform for long-term growth and profitability. As a result, the streaming business has gone from losing $2 billion a year at the start of 2019 to making an overall profit this year. Mr. Iger has grown his streaming platform far faster than the linear business has declined, has not fallen into a self-destructive streaming arms race like his predecessor, Bob Chapek, has not cannibalized the company's business, and has not shifted control from the creative officer to his handpicked deputy, Kareem Daniel, and flooded Disney+ with too much low-quality content that no one cares about.
Disney still has plenty of untapped opportunities to accelerate not only subscriber growth, but also revenue and profit growth. In multiple public interviews, Iger has said that streaming ad revenue has the potential to grow exponentially, especially with more personalized, targeted digital ads, which are more valuable to advertisers than traditional linear TV advertising models. As almost all competitors have done, if Disney continues to widen the pricing gap between ad-free and ad-supported streaming subscription packages, the rate of growth in streaming ad revenue will accelerate even further. Surprisingly, Disney still has the cheapest ad-free monthly fee among its competitors: Disney+'s ad-free plan costs $13.99 per month, which is cheaper than Netflix's $15.49 ad-free monthly fee and Max's $15.99 ad-free monthly fee. It's also surprising that Disney doesn't have a premium package, while competitors like Netflix and Max make a profit from the $22.99 premium package and the $19.99 premium package, respectively. At least on paper, there's a fair amount of room for Disney to raise the price of its ad-free subscription package. Raising prices doesn't necessarily affect accessibility and affordability: Disney+'s $7.99 ad-supported subscription tier is still very affordable for consumers and can also be a huge boost to Disney's ad revenue.
In addition, Disney also plans to complete an agreement to acquire the entire stake in Hulu from Comcast later this year, fully integrating Hulu with Disney's wholly-owned streaming platforms Disney+ and ESPN+, which will also open up untapped business opportunities for Disney.
Disney even owned a stake in Hulu in the first place, which is a testament to Iger's foresight. If Iger hadn't bought 21st Century Fox from Rupert Murdoch in 2018 and Comcast had bought 21st Century Fox (Hulu is part of 21st Century Fox), then Comcast would likely be ahead of Disney in today's streaming space, not far behind, given that Peacock has only 30 million subscribers, less than one-sixth of Disney's subscribers. The most compelling criticism of Iger's deal to buy Fox is that perhaps he should have bought Time Warner from Time Warner's legendary CEO, Jeff Bewkes, rather than 21st Century Fox, as Time Warner's assets, including HBO and Warner Bros. content libraries, might be a better fit for Disney's family of brands.
Another underestimated opportunity comes from the maturing of the emerging streaming industry. In 2022, traditional media companies will lose more than $10 billion in streaming media total, and the era of the streaming arms race is likely to end with more restrained content creation and spending. While big tech companies continue to make big inroads into the media and entertainment business, many streaming platforms are struggling to get off the ground due to a lack of access to content. Due to the unfavorable antitrust regulatory environment, it is difficult for them to purchase much-needed content libraries through inorganic mergers and acquisitions, which provides Disney and Netflix, which have leading streaming platforms, with a huge competitive advantage.
Linear: Bridging the transformation gap and cutting costs while smartly avoiding low-priced sales
Iger has successfully navigated the streaming revolution and truly transitioned from a linear business to a thriving linear business, thus opening up the best of both worlds.
Despite severe pressure on the linear business model, Disney's ABC and ABC-owned TV stations are still generating healthy revenues and profits. If the linear ad market returns to more normal levels, especially as the presidential election (and associated ad spending) looms this fall, there is still some potential for revenue growth, as many expected.
Despite a large number of potential buyer bids, Iger cleverly refused to sell at a low price while focusing on reducing costs, with a large portion of Disney's $7.5 billion in cost savings coming from linear costs. Iger also streamlined its linear operations, focusing on core channels and cutting back on the less economical and viable third channel.
Disney's recent negotiations with Charter provide a win-win blueprint for how Disney can continue to support its traditional linear business model, while also helping it bridge the gap with its streaming business, while Disney offers Charter customers an ad-supported Disney+ streaming subscription service (discounted) at wholesale prices, providing cable customers with a simple and affordable streaming option to complement their existing cable subscriptions.
Studios: Focus on quality, not quantity
During Robert Iger's first tenure as CEO, Disney produced 8 of the 10 highest-grossing films of all time, as well as 13 of the top 20 films, both grossing more than $1 billion at the box office. In contrast, none of the films made by Bob Chapek grossed more than $1 billion at the box office.
Unlike Chapek, who focused on centralizing power and alienated creative talent with high-profile war of words, Iger understands that Disney is a storytelling company at its core and knows how to make good movies.
To this end, Egger prioritizes quality, not quantity. "Quantity sometimes affects quality," he candidly says. In our zeal to dramatically increase numbers, some studios have lost focus. So the first thing we did was to reduce the numbers, especially in the Marvel movies. ”
Disney Experiences (Parks & Resorts): Breaking records across the board
The revenue figures for Disney Experiences, including its key parks and resorts, speak for themselves: not only are the number of guests continuing to break records, the number of domestic visitors is double that of pre-pandemic levels, and 2023 is also a record year for revenue, revenue, and operating margins.
What's more, Iger recognized the importance of parks and resorts to the Disney brand and families around the world, tempering the harsh and unwelcome consumer price hikes brought about by his predecessor, Chapek. Chapek has used park price increases as a "cookie tin" to make up for lost streaming.
Rather than encroaching on Disney parks and resorts in order to fund projects he favors, Iger is investing in growth and affordability. He plans to invest $60 billion over the next decade to achieve sustained growth, reflecting the highest return on investment capital of any business line in parks and resorts over the past decade, and one of the few lines that are not affected by competition from big tech companies.
Sports: Standing tall among the many options
As Iger likes to quip, "Sports will continue to stand tall among the many options in the entertainment industry," and Iger is committed to making ESPN the only leading digital sports platform that will enable Disney to grow in sports.
New add-ons like ESPN Bets reflect that vision, but that's just the tip of the iceberg: ESPN, an immersive flagship direct-to-consumer product expected to launch next year, will include features such as integrated betting, virtual matches, shopping, statistics, customization and personalization, designed to appeal to all sports fans, from regular fans to die-hard fans. Iger cleverly refused to bring in strategic partners whose value-added capabilities were up for debate, and also refused to sell ESPN cheaply.
In addition, Disney's new sports joint venture with Fox and Warner Bros. Discovery Channel is off to a good start after appointing Apple veteran executive Pete Distad as its head. Bundling sports content will not only alleviate the frustration of existing users, but also tap into markets that can see tremendous growth. After all, out of 125 million U.S. households, more than 60 million are outside the traditional cable bundle ecosystem and are desperate to watch more of their favorite sports on one platform.
Disney has already found that customer churn drops dramatically as long as "bundled" packages are offered, so it's reasonable to assume that streaming services and cable customers will be deeply bundled to ensure an all-round reduction in the cluttered customer experience.
new lines of business such as games
The legendary Disney flywheel, drawn by Walt Disney himself, is expanding, with each new line of business building on and building on the momentum of its neighbors. Iger has never been afraid to take bold leaps to expand the flywheel, such as Disney's recent $1.5 billion acquisition of video game maker Epic Games. Millennials spend as much time gaming as they do watching TV or movies, and video games are not only a highly lucrative add-on business for Disney, but also a natural add-on that elevates the value and depth of Disney's existing brand franchises, especially Marvel and Star Wars.
Image credit: Courtesy of Disney
Mr. Iger's vision for the future is compelling, which is why even other activist investors — like ValueAct's shrewd and constructive Mason Morfit, whose worth increased by 46 percent last year — have backed the Disney chief executive.
Iger's track record at Disney can't be overlooked, but he doesn't dwell on the past. Conversely, while media analysts are helpless to complain that the golden age of media and entertainment companies is over, that revenue growth will be gone forever, or that streaming will never be as profitable as linear bundling, Iger has built a fresh vision and a blueprint for innovation for the modern entertainment company.
Film critic Roger Ebert once quipped, "Good movies aren't too long, and bad movies aren't too short!" Robert Iger's elaborate cross-line growth plan will ensure that Magic Kingdom continues on the magic carpet road, something he will focus on during his tenure as Disney's CEO for many years to come. (Fortune Chinese Network)
Jeffrey Sonnenfeld is the Lester Crown Professor of Management Practice and the founder and president of the Yale CEO Leadership Institute. In 2023, he was named "Management Professor of the Year" by Poets & Quants.
Steven Tian is director of research at the Yale CEO Leadership Institute and a former quantitative investment analyst at the Rockefeller Family Office.
作者：JEFFREY SONNENFELD AND STEVEN TIAN
Translator: Zhong Huiyan-Wang Fang
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