Bob Iger Returns To Disney With A Huge List Of Looming Challenges

The stunning announcement Sunday night that put sainted former Disney CEO Bob Iger back atop Hollywood’s biggest and most respected media company doesn’t obscure one truth: Disney has a lot of unresolved challenges, and many of them can be traced to previous Iger decisions.

To justify the trust the Disney board has again put in Iger, he’ll need to fix that long list of challenges, or at least begin to resolve them amid an economic downturn, a still-struggling theatrical box office, continued cord-cutting, and flattening growth in streaming video.

Former CEO Bob Chapek, the man Iger finally chose as his successor, booted several big tests of leadership and emotional IQ after taking over in February 2020. His possible ouster rumbled around Hollywood rumor mills for many months, even after the Disney board extended Chapek’s expiring contract in late June.

Iger exited stage left weeks before the pandemic lockdown closed most of Disney’s most profitable businesses, though he remained board chairman for another 22 months. Truth is, Iger never fully let go the reins at Disney, holding forth at investor conferences, weighing in on Twitter, letting supposedly private criticisms repeatedly surface publicly. Now he’s fully back, for good and ill.

As big tech investor Alex Kantrowitz put it this morning in a CNBC interview, “Disney and Bob Iger have a co-dependence problem.”

The reunited couple now get to work through their many unresolved issues, but in a most unpropitious situation. It’s hard to see the honeymoon lasting long, given the list of pressing questions facing the company. And as the board’s news release announcing the change made clear, Iger has two years to fix everything. Here’s what’s before him:

Structure: Company creatives can’t wait for Iger to reorganize Chapek’s controversial reorganization, which put all programming green-light decisions under one centralized unit headed by long-time Chapek lieutenant Kareem Daniel. Chapek was addressing a fundamental challenge facing all diversified media companies: how do you decide what projects should go where, in a way that maximizes revenues and controls mounting costs?

Disney is expected to spend $33 billion on content this year, including a lot of very expensive sports rights.

Somebody has to be the traffic cop. And that cop needs to make decisions amid reduced revenues from legacy broadcast and cable operations, a hobbled theatrical business, and increasing streaming competition. What will the newest reorganization look like?

Finances: Chapek’s downfall, or at least the board’s final straw, reportedly came in this month’s earnings call and its fallout. Disney reported a whopping $1.5 billion in quarterly losses on its streaming operations, in part because of flattening growth and in part because cord-cutting is hitting its older businesses harder and faster than expected.

Like all its competitors with legacy film, broadcast and cable operations, Disney is milking the still substantial revenues of those divisions as long as possible while pushing as much content as possible to its streaming operations to build market share and customer loyalty. Chapek promised to cut losses in coming quarters, and get to break even by 2024, which the company has long said would be its break-even year on streaming.

Chapek followed the earnings call with what seemed like a hurried, reactive staff memo that basically said he was planning to make a plan to fix the problems. The problems remain. Iger still must fix that mismatch of income and outgo, permanently.

Succession: The board made it clear Iger has one key job the next two years – finding a permanent successor. For the guy who dithered about retirement for half a decade, ran off at least two competent candidates, then picked the guy he’s now replacing, choosing a new No. 1 won’t be simple. It’s also not clear why the board thinks Iger will do any better this time around.

Instant scuttlebutt on successor candidates focused on Disney entertainment chair Dana Walden, Marvel mastermind Kevin Feige, and Peter Rice, who was Walden’s predecessor before Chapek summarily booted him last summer. It is vital to note that none of those entertainment executives have ever worked on the gigantic other half of Disney’s operations, which include the parks & resorts, consumer products, and home entertainment.

Chapek did, part of what made him a seemingly promising candidate. But that combination of skills and experience across the entire vast face of Disney may be nearly impossible to find among the other 8 billion humans on the planet besides Iger.

Debt versus acquisitions: Iger’s $71 billion acquisition of Fox in 2019 was supposed to give Disney the heft to compete with Apple, Amazon, Netflix and everyone else in the streaming era. The deal did bring production facilities, talent, a library, intellectual property, a controlling share of Hulu, and access to the many great shows of the FX network.

But it also saddled Disney with a mound of debt that limits the company’s flexibility. It’s like running up a credit card bill during the boom times, then having to figure out how to pay off the balance when the economy heads south. It’s also entirely possible Disney is still not big enough to truly compete. Will Iger seek another acquisition? Will that deal actually drive more subscription signups, viewer engagement, and reduced churn? Will the debt overwhelm plans to fix the company’s broken finances? And could any deal make it past increasingly active regulators on multiple continents?

Hulu: Speaking of Hulu, Disney and Comcast signed a put/call agreement on the streaming service’s future ownership that must be resolved by 2024. Its unresolved nature complicates both companies’ streaming strategies, but so does their wildly differing assessment of how much Comcast’s one-third share is worth.

A resolution means still more debt for Disney, and doesn’t resolve Hulu’s role in Disney’s hydra-headed streaming strategy. Should it be folded into Disney Plus to create a truly full-service offering?

The company took a step in that direction recently by finally allowing subscribers to its Hulu/Disney+/ESPN+ bundle to create a single, unified password and signon. But on a global scale, with Hotstar doing outside the United States what Hulu does here, how does that all resolve in the most cost-efficient, customer-friendly way?

ESPN: Also up in the air is the long-festering uncertainty around one of Disney’s most valuable and cost-intensive assets, ESPN. The worldwide leader has amassed an admirable pile of extremely expensive sports TV rights, but remains largely bound to its cable sinecure. ESPN+ is an under-fed, uninspiring streaming service waiting for the cable collapse to give it actual relevance. Iger acknowledged a year ago, at a valedictory CNBC interview, that he probably should “have pushed … harder” to move ESPN operations and video rights to streaming than he did. Now he gets another chance to revisit that very expensive and complicated question.

China: Disney hasn’t had a Marvel movie make it to the big screen in China since the last time Iger was in power. That matters because the world’s No. 2 theatrical market used to be a gigantic contributor to the worldwide gross of Disney’s many blockbusters. No more. Without that Chinese contribution, finances, release strategies, even the casting and story lines of future films is affected. It’s possible Iger can unleash his vaunted charm and political skills to reopen China. But China’s increasingly repressive government has largely turned off the spigot for Disney films, favoring local movie companies that reliably churn out nationalistic blockbusters that carefully ape strongman Xi Jin Ping’s larger goals.

Marvel, Star Wars fatigue: Iger spearheaded release strategies that commissioned phalanxes of new series and movies built on the narrative universes of Marvel and Star Wars. Jim Cameron’s Avatar franchise, another fruit of the Fox deal, is about to get the same treatment, after its first sequel finally arrives next month. But it turns out there are limits to the appetites of even the most hard-core of the many, many hard-core Marvel and Star Wars fans. Recent series and movies, even critically well received ones, have underperformed. That’s set off internal conversations about how to optimize these crucial pieces of Disney’s entire intellectual-property flywheel. Fewer shows means less spending, but also means less for fans to engage with, which means they may be more likely to churn out to another service until the next enticing show arrives.

What to do with Parks: Chapek raised prices on pretty much everything to make up for streaming losses. The price hikes are especially steep at Disney’s lucrative parks and resorts, which may be an issue if the economy continues to slacken. Repeated maximalist Covid shutdowns in China also have affected the parks in Shanghai and Hong Kong. Will price cuts, discounts, or other deals be necessary in the future to drive utilization consistently?

Iger may be the best qualified human on the planet to take on this lengthy list, but he’s also 71, and has a ticking time limit on his second term. It will take all his skill and experience to deal with even the most pressing of these issues in that two-year span.

The question between now and 2024 is whether Bob Iger The Sequel can be as good as the original. But as anyone in Hollywood can tell you, sequels almost never recapture the magic of the original.