Disney CEO Bob Iger said that as the traditional pay-TV universe continues to shrink, the company is cutting its investment in programming for linear entertainment TV networks while amortizing overall content spending across streaming platforms.
The strategy is “to reduce pretty dramatically our investment in content specifically aimed at those traditional networks,” Iger said Wednesday at MoffettNathanson’s 2024 Media, Internet and Communications Conference in New York. The conclusion Iger reached after reviewing Disney’s TV business when he returned as CEO in the fall of 2022 was that “it’s not a growth business, but it could become an important component to our ability to basically engage with the consumer.”
Iger’s comments come a day after Disney’s big upfront presentation in New York announcing a slate of new shows across TV and streaming.
Iger gave credit to Dana Walden, co-chair of Disney Entertainment, who oversees the portfolio of linear networks, for managing the transition. Disney will invest in some traditional TV areas, Iger said, but it is managing traditional networks and the streaming platforms under the leadership of one executive — Walden on the entertainment side, and ESPN chair Jimmy Pitaro on the sports side — whose goal is “basically to drive bottom-line growth.”
For example, when ABC airs a new episode of “Grey’s Anatomy” or “Abbott Elementary,” it goes on Hulu “pretty quickly” and “what we’re getting is unduplicated audiences. We’re basically aggregating greater audience and we’re amortizing costs,” Iger said. Disney is “doing that across the board,” at ABC, Disney Channel, National Geographic and other networks, and “it’s working,” Iger added.
“We’re going to continue to see erosion in terms of subs for those businesses, but we’re going to actually continue to drive profitability because we’re managing our costs so effectively,” Iger said. “We feel comfortable with our hand right now, because we’re using those networks efficiently and effectively.”
During the MoffettNathanson session, Iger said when the company first launched into the streaming business in 2019 with Disney+, “we were neophytes” — and overinvested in content.
“As we got into the streaming business in a very, very aggressive way… basically, we invested too much,” well ahead of “what was truly monetizable,” he said. That contributed to billions in losses, he said, and “It resulted in volume, not quality.”
After Iger returned as CEO in November 2022, Disney restructured its operating divisions so that creative executives have P&L accountability for what they spend on content and the revenue it generates. Iger said it’s key to have a CEO with “a deep creative background”: “The entire organization knows there’s some guy in the corner office watching everything carefully… Good isn’t good enough — it has to be great.”
On streaming, Disney’s major push in the near term is to boost engagement in order to reduce churn. As part of furthering that goal, Disney+ has integrated Hulu for subscribers of both services, and Disney+ will add an ESPN tile in December that will offer non-ESPN+ subscribers a “taste” of live games and programming (while ESPN+ customers will get access to all the content within Disney+). In addition, Disney is going to crack down on illicit password sharing, starting in limited markets in June followed in September when it will roll out “more aggressively across the globe,” according to Iger.
Another way Disney plans to increase engagement is using artificial-intelligence technology to deliver more personalized content experiences to users. “That first great experience has to be dynamic,” Iger said of Disney’s streaming services. “Every time they open the app it has to be something different — this is where AI will just be a huge, huge important tool to do all this.”
Iger said coming soon to ESPN will be a customized version of its popular news and highlights show “SportsCenter,” which will serve content based on a user’s favorites sports or teams. When you turn on ESPN to watch “SportsCenter,” Iger said, “it should know I’m a Knicks fan. We are actually working on that.”
Iger didn’t comment on ESPN’s specific sports rights negotiations, including its current talks with the NBA. But, he said, “We have passed on things. We knew we couldn’t buy everything.” That said, ESPN has “the most in terms of volume and the most in terms of audience engagement.”
“We aim to manage a portfolio of rights that will enable ESPN to maintain a leadership position in sports,” Iger said. In that way, “you protect your economics… If you’re a sports fan, you need ESPN.”
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For the first three months of 2024, Disney’s entertainment streaming biz — comprising Disney+, Hulu and Disney+ Hotstar — turned in its first operating profit. Overall, the direct-to-consumer segment was still in the red due to a loss at ESPN+; the company said it’s on track to achieve streaming profitability by the September 2024 quarter.
Following the earnings report last week, the media conglomerate’s stock fell on weak guidance for its theme parks for the June quarter and the ongoing decline of its TV business. Iger, commenting on the Disney theme parks business, said, “What you have to realize is that we’ve had double-digit revenue growth in that business for some time… I want to emphasize we can grow these businesses nicely.” The parks business also will see some one-time expenses in the June and September quarters. Backing out those one-time costs, Disney expects operating income in fiscal Q3 to be in the mid-to-high single-digit range and to increase double-digits for Q4.
“I’m bullish on the [theme parks] business, but I’m also realistic about it,” Iger said.
Last month, after a contentious, months-long proxy fight by activist investor Nelson Peltz, Iger and the other incumbent Disney-backed board members won reelection by a wide margin at the annual shareholders meeting. Peltz’s Trian Partners unsuccessfully lobbied to get a pair of board seats, arguing that Disney’s poor stock performance necessitated directors with fresh thinking.
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