THB #260: Welcome Back Iger
Daddy’s coming home to calm Jim Cramer’s little heart.
He’s also coming back to clean up Bob Chapek’s mess… which has been overstated. I would bet dollars to donuts that the thing that killed Chapek was that he couldn’t offer Disney’s board light at the end of the $90 - $100 stock price tunnel. I think the man is obviously highly intelligent and knowledgable about Disney, but I think he got caught between trying to manage the functioning of Disney, which he is expert in (in some areas), and the concept of Disney’s massive picture of the future, an expert in which he is not.
Quoting myself from my Chapek piece of Novemeber 14:
To me, the single biggest flaw is that the content pipeline has not been consistent.
For me, that is the biggest problem with the product that is Disney+. They have only had 5 major IP series in 2022 with 5 more sneaking in before year‘s end. It’s not enough to keep things fresh and jumping on the app. Yes, the library content is one-of-a kind. But the more you lean on that library, the more the app becomes niche.
Hulu has had no such issue with content. More than 20 new series or limited series made for Hulu, plus the FX content coming to the app within 24 hours, plus ABC network content rerunning on Hulu, plus docs, plus Searchlight movies. Hulu is on constant refill.
I watch sports daily and I haven’t turned on ESPN+ more than 5 times in the last year.
I can see that the pricing policy at Disney Streaming has been to make individual purchases of these 3 arms of their bundle prohibitively expensive to buy just on its own, pushing people to The Bundle. But it is, based on the limited detail offered to stock investors in the company, unclear how things are really going.
Just on the domestic side, if Disney+ has over 40 million subs and Hulu has over 40 million subs, the assumption would be that they are bundled. But ESPN reports only 24 million subs, does that mean that there are only 24 million bundled customers and almost 20 million at both Disney+ and Hulu still buying those streamers on their own? That is not a win.
The current unofficial cap for streaming prices in America is $20 a month. The Disney Bundle without ads on Hulu is that. Netflix’s top service with no ads, 4K, and multiple TVs playing at the same time is that. Netflix’s Average Revenue Per Unit is $16.37 in America. This is without the new low-end ad tier. Disney’s is $6.10 for Disney+, $12.23 for Hulu, and $4.84 for ESPN+… $23.14 when combined.
So how does Disney now make this one coherent offering that they can then target market to individual tastes within the bundle but streamline the amount of content and the consistent release of content to keep churn low?
The gold rush is over. Ted Sarandos shouting, “You have a deal… You have a deal…You have a deal…” all over town like Oprah’s overcompensating white cousin is over. (Well… the first rule of Deal Club is to not talk about Deal Club anymore.) Netflix’s spending was a distraction that no one (including Netflix) is required to repeat again.
Wall St, in their infatuation with Netflix, couldn’t help but to convince itself that spending more than half your gross earnings on content was exciting and bold and super smart. The world would just keep expanding. And it was more exciting and bold for Netflix than for anyone else. But it was incredibly dumb for major production studio/distributors that spent decades spending less than a quarter of the annual spend that Netflix felt they had to spend on content to build an independent library. For Disney, which was spending the most on movie production by a fair margin, and has a broadcast network, cable networks, and what was a thriving theatrical business… it was gilding the already gilded lily.
But I digress…
Households average 40 - 60 hours of TV time a week. If your entity can capture 8 of those hours, you have a customer who will not churn (unless you go wild on pricing).
I’m sure Bob Iger has a Priority List of 10 to 20 things to do immediately.
For me, this issue is near the top. Clean up what Disney is selling as a streaming in the most profitable market on earth, America. Maybe it means making a Hulu deal now. Maybe it means cutting some stuff. But I’m actually asking for progress, not regression.
“There is no America. There is no democracy. There is only IBM, and ITT, and AT&T, and DuPont, Dow, Union Carbide, and Exxon. Those are the nations of the world today.” - Arthur Jensen, as written by Paddy Chayefsky
My change would be: There is no ABC and Hulu and ESPN, FX, Fox, Disney, and Freeform… there is only The Disney Bundle… and if you buy it… and if you watch it… you will be freed!
This is the future. Whatever you call yourself, if you own 20% or more of my television attention span, you are a welcome member of my household. Anything less and you are just another thing flying by.
Figure out how you are going to take over the world.
Netflix has 150 million international subscribers at a reasonable ARPU. Disney has 46 million. Yes, there are wars to win at home… but as legacy media slows - and let’s stop posturing that TV over the internet structured in much the same way as Legacy is not the same thing, really - the potential for it not to completely suck the life out of the revenue base is is to build new, thriving customer bases internationally. That’s where most of the customers are. There are legitimately different pricing expectations, but building out the world has to happen or we are going to have an industry depression within 3 or 4 years… maybe sooner, if you are Richard Rushfield.
I am not in a position to demand any specific choice… just that there is a choice.
Either get in the animation business seriously again or sell off Pixar. The company is not some toy to churn out streaming shorts. They can do that. But either you are in the animation business or you are not.
To have new IP at the highest level, which does seem to be a major goal, you need to build it… it doesn’t just happen. There is a lot of talk about servicing the consumer. It is mostly bullshit. They don’t always have to buy your wares, but the only way to get them to embrace them and remember them is to stick it in their face, over and over again, and sell it until they start seeing it in their dreams.
I don’t think that Chapek was fired for not marketing Strange World so that it might open better than the mediocre $27 million that the amazing and eventually beloved worldwide cash-light hit Encanto did a year ago. I’m sure he didn’t get fired because he casually said the movie would be on Disney+ for Christmas, having already given up on it. I am guessing that the question of why he would not chase hundreds of millions of dollars in theatrical with Encanto, Turning Red, and Strange World while losing billion on streaming might have come up.
I am sure Strange World’s not as good as Encanto… but I don’t care. As a moviegoer, I have been seeing materials for the film for months - not shared very widely - and all I know is that the are jelly animals and 5 humanoid characters that look like they were in Rescue Rangers. This week I learned, through media, that a character is gay. That’s it. So why would audiences be going? You have to sell the movie like you want poeple to go see the movie.
Or get out of that business.
It’s the endless splitting the indifference (not a typo, a pun) that has always grinded me about Chapek.
Does the vision that Chapek sold 3 years about about Disney streaming still live? Does he want ESPN to be The Sports Leader in every country possible? Is the Disney brand bigger than just kids movies? Can the streaming version of The Disney Life play for every member of the family worldwide (except China)? Can Iger get Marvel movies rolling in China again?
What Iger can do and Chapek could not is to tell the story and calm the village. His decisions in the next 6 months will only be as important as his ability to sell a vision of a great future for the company.
Welcome back, your age was your ticket out
Welcome back, to the same old dwarves that you laughed about
Well the jobs have all changed since you hung around
So the bitterness stuck and the ship’s aground
Who'd have thought Bob'd screw up
(Who'd have thought Bob'd screw up)
But the company blew up
(But the company blew up )
Yeah we tease him a lot 'cause he lost his parking spot, welcome back
Welcome back, welcome back, welcome back
Welcome back, welcome back, welcome back
Bob go, Bob go… you’ve done enough, oh no!