THB #256: What About Bob II?

I woke up this morning to Jim Cramer squealing on CNBC about how he could only recommend ever buying Disney again if someone else was in the CEO’s chair.

I have not been a Bob Chapek bull. I have issues with many of his choices. But good f-ing lower case god, Cramer… what is that all about?

Pop Quiz… here are the market caps for 2 entertainment companies and how they have changed in the last 3 months and change. Which one is 2.5x times bigger than the other?

August $110 billion… now $129 billion

August $220 billion… now $173 billion

I’m betting that many of you got the answer right. Now, you might be kind enough to explain to me why Netflix has grown, in stock value, by 17% and Disney has fallen 21%.

Disney generates more than $80 billion a year in revenues. Netflix will crack the $30 billion a year revenue figure this year for the first time.

Nothing at all against Netflix. I think they are overvalued at $129 billion, but not by a massive amount.

But Disney is is only worth 2x revenues and Jim Cramer says you shouldn’t buy into the company unless Chapek is gone. I mean, Cramer has had a hard couple of weeks and already blew his rhetorical brains out on TV over Facebook, so the level of drama is not unexpected. But if I had $1 million and only $1 million sitting around today, I’d be all in on Disney at $95.

Parks (& Experiences) alone is worth at least $80 billion. It’s annual net alone is at least $1 billion more than the whole of Netflix. And while it is possible that an upcoming recession could slow Parks, it won’t be by as much as that $1 billion a year.

No, I am not suggesting spinning off Parks, you M&A deluded fools!

But I am saying that the consternation about Disney is all about television and film. How much damage will the transition to streaming-primarily continue to do to the company’s bottom line?

Not coincidentally, this is where Chapek shows his least skillful management.

But in the extreme devaluation of Disney, you would think that legacy Disney (ABC/ESPN/cable nets) weren’t generating $28 billion a year (again, right there with all of Netflix) and netting $8 billion. You would think that the build out of Disney Streaming (aka DTC) wasn’t grossing almost $20 billion a year… though still losing $5 billion a year… as Chapek said it would.

I don’t know that Bob Chapek is the man to clean up the tv/film side and push it into the future. I believe his biggest failing in his first 2 years has been that he got caught chasing Wall Street’s love and has found out that they have the temperament of a hormone-deluded teen.

I also believe that Parks, at which he may the world’s leading expert, will mostly take care of itself if whatever CEO shows love and respect to and for the division. Chapek’s blundered on things like trying to move all of Imagineering to Florida. But he got saved from himself on that one… at least for now.

I have been very critical of Disney’s posture on theatrical exhibition and that hasn’t changed. But it is not one of the bigger planks of my questions about the future of the company. They are screwing it up. They are throwing away money. They are giving up the opportunity to build IP for the future in the most effective way. But… financially… it is a 2nd or 3rd tier issue.

Let’s go back… the full presentation announcement of Disney+ in November 2019 took Disney to a decades-high valuation of $263 billion.

Market Cap

You can see the $358 billion peak in March 2021. That is also hysterical. I don’t think Disney is worth anything near that, much as I didn’t think Netflix was worth $305 billion last October. Madness.

But less than half of that peak for Disney is too little for this company.

What made me think about that day in November 2019 is the question is why Disney exploded that day. And I can tell you why… Chapek sounded like he had a clear idea of where the company needed to go and what the future of Disney and, perhaps, all filmed entertainment was going.

The problem is, in the 3 years since, Chapek has not delivered on some of the promises and has lost the ability to reframe the future in a way that excites the market… which is always looking for its next buzz.

To me, the single biggest flaw is that the content pipeline has not been consistent. The fantasy that every series or streaming film is going to be “the best” is infantile, really. But Disney was clear, from early on, that they needed a big hit every 3 months. Then it felt like maybe they needed 2 big hits every 3 months. But outside of abusing their theatrical windows to fill the many holes, there just aren’t enough shows. If you’re going to order 8 episodes of most series, the weave needs to be a new series with potential launching every 6 weeks or so… the old show promotes the new one and keeps the use of the platform consistent. That’s 8 or 9 “big” series a year, minimum.

I count 5 in 2022, with (the terrific) Willow and National Treasure about to land. But we’re 46 weeks in.

This is not how network television has worked. It’s a new paradigm. But it’s not feeling fully fulfilled even in this way.

Going further into the tv/film side of the business, the three big questions for me are…