Let’s continue last Friday’s discussion of the failed Disney CEO transition.

We’ll start with a simple issue. Streaming.  (OK.  We know it’s really not such a simple issue!)

During the pandemic, streaming seemed to have become one of the primary processes to get folks to view artistic fare. After all, we weren’t going to theaters, where we could contract COVID-19. So, it’s not surprising that Bob Iger was the creator of Disney+; it grew frenetically from its inception at the Fall of 2019.  It’s growth was enhanced  since it was priced about ½ that of Netflix.

Disney+ had acquired 164 million subscribers, not only on its own merits, but because Disney inked deals with Delta (airlines) and Verizon.  In the meantime, Disney absorbed $ 1.5 billion in losses from the service.

But, as the pandemic became an epidemic, streaming activity was attenuating. Moreover, the initial plans stressed growth and not profitability. So, yes, that meant that there may have been slews of subscribers, but Disney’s bottom line was being hurt by the offering. And, to be honest, it’s not clear any provider (we are not limiting this thought to Disney) has a clue what the optimum return on investment (ROI) should be for such services.

(You do recall that when AT&T could not figure out how to manage its streaming business offerings profitably, it dumped the entire system, selling it to Discovery. And, Discovery promptly terminated the big CNN+ plans underway. That’s not maximizing ROI, but it is husbanding resources, keeping valuable creative content from losing value.)

To make analyzing Disney+ streaming value more difficult, Chapek had already replaced the second-tier (but top quality) management of the firm and the extant reporting structures. Under Iger, the creative team that developed movies and shows (plus the Disney “Imagineers”- the characters that populate the theme parks) had always maintained distinct independent reporting and budgeting authority.

Bob Chapek had called in McKinsey, the world famous management consultants, to help streamline corporate operations.  McKinsey honed in on the creatives and the reorganization of the creative division.  (I’m pretty sure Chapek had the same idea; McKinsey just confirmed his beliefs.)

Moreover, it’s not clear that Chapek bought into the “Disney Magic” mystique.  (That’s why customers to the parks are called “guests”.) Disney is not just a big business,  And, Chapek lamented that many of the theme park guests were locals- which meant they didn’t have a need for hotels and meals (not the fast food fare)- and he labeled such folks as an “unfavorable attendance mix”,  to which the “guests” took great umbrage.

On Monday (28 November) after he replaced Chapek as CEO, Bob Iger met with Disney employees in Burbank for 45 minutes.  This event was closed to the public, yet two folks shared their private recordings.  Iger was granted a standing ovation when the meeting ended.

Chapek removed the creative group’s special distinction and coalesced the entire group under Kareem Daniel (who never worked in those divisions; his bailiwick was strategy). This rankled the creative types in a big way (as well as Bob Iger- who should have left the company’s management instead of sticking around [and was still considered the ultimate “golden boy” of Disney] until the very end of 2021).

It wasn’t just an ego blow to those creative folks- it was a business limitation. Kareem Daniel set up a distribution arm that chose the “best” platform for each content, as well as their budgets. The choice of sending a movie to streaming (now including Disney+ instead of a theatrical release reduced the prestige of the offering- which dramatically lowered its revenue generating capabilities).

But, streaming was one of the ways to accommodate Disney’s acquisition of Rupert Murdoch’s 21st Century Fox [a massive film repository], TV production systems, and Hulu (another streaming enterprise. Not to mention Iger’s prior acquisitions of Marvel Entertainment, Lucas Film, and Pixar.)

(Just so you know, Daniel was the second casualty after Chapek, once Iger returned to preside over Disney.)

During that employee briefing, Bob Iger stressed that Disney would no longer focus on increasing streaming subscribers- but, instead, would focus on profitability.   After all, Disney lost some $ 1.5 billion due to streaming just for the last quarter.  (There are basically three choices to firm up streaming profitability- cut costs, raise prices, or add subscribers. But, each of these factors works against the others, so it requires more than a little finesse.)

We’ll finish this discussion up tomorrow.