Disney: Bob Iger has two years to ‘assemble his team of Avengers,’ analyst says
Bloomberg Intelligence Senior Media Analyst Geetha Ranganathan joins Yahoo Finance Live to discuss the ouster of Bob Chapek as CEO of Disney and the return of Bob Iger to the role.
Video Transcript
DAVE BRIGGS: Disney shares, meanwhile, feeling the magic today, up, as you can see, more than 6% on CEO Bob Iger's return. He has two years to turn things around, find and train his successor. What's the investor story moving forward? Let's ask Bloomberg Intelligence senior media analyst Geetha Ranganathan. Nice to see you, Geetha. 6% on Bob Iger. What's your reaction?
GEETHA RANGANATHAN: Yeah, the king is back at the Magic Kingdom. The magic is probably back, too. So, you know, I think this is a move that is really, obviously, as you can see, being cheered by investors. It's being cheered by Wall Street analysts. Obviously, Bob Iger has his task cut out for him. There are multiple issues that he needs to address right away. Streaming losses is the absolute number one issue on hand. But there are so many other things, whether it's the legacy TV business or whether it's the growing costs at the parks business. What is really the strategic direction that this company needs take to kind of futureproof its business model.
SEANA SMITH: Geetha, that number one issue that you identified, streaming losses, how do you see Iger addressing that being different than maybe what we would have seen from Bob Chapek?
GEETHA RANGANATHAN: Yes, so it's really now this growing investor focus that has gone kind of-- that's kind of shifted away from just subscribers to profits. And there's just been this fundamental shift in the way that the market is thinking about it. And investors no longer have patience. And we've seen the streaming business at Disney already lose about $8 billion. They're expected to lose another $3 billion in fiscal 2023.
So obviously, Bob Iger really has to kind of go back and articulate a much better strategy. There's a lot of fear among investors that maybe the content is being undermonetized. I mean, we know that content is king. And in many ways, you know, Bob Iger has done some very, very transformative deals in content, whether it was Marvel, Pixar, you know, Lucas.
So he really knows. He has a finger on the pulse when it comes to the creative process. He knows exactly what to do. He knows what works. And so there is a feeling that maybe some of the investments that were made under Bob Chapek's leadership probably haven't really brought the returns that they need-- that they should have. And maybe that's where a lot of corrective steps need to be taken.
DAVE BRIGGS: And Geetha, to look forward, we ought to look back quickly. What, to you, really was the thing that sunk Bob Chapek? Was it simply that quarterly report that was brutal? Was it the streaming losses? Was it even the tone in that earnings call?
GEETHA RANGANATHAN: I think it's a little bit of all of the above, right? I mean, I think Bob Chapek didn't really understand what a massive enterprise he was leading and how many different balls he had to juggle, right? There was-- he-- there were a lot of internal, as well as external missteps. I don't think he understood that he really needed to be a kind of-- he needed to build this rapport with his employees.
But then there were so many public relations missteps, that whole political controversy in Florida. There was a whole fallout with some Hollywood heavyweights, including, you know, Scarlett Johansson. So there were just too many different things that happened. And of course, that-- I think that earnings report was really kind of the last straw, you know, where the board just basically said, OK, enough's enough, and we need to fix this right away.
SEANA SMITH: So the first succession plan clearly did not work out with Bob Chapek. Now as we look ahead to that next successor, I'm not going to ask you to identify who you think will be the right person for the job, but I guess the way that Bob Iger is going to go about it this time around, how do you think that's going to look different than what we saw initially?
GEETHA RANGANATHAN: Yeah, I mean, this has been one of the things that has constantly dogged Bob Iger, right? The succession issue has been now going on at Disney for almost a decade, I want to say. And it's something that he hasn't really been able to kind achieve success with. So he has two years to do it. He obviously has to assemble his team of Avengers here. I don't know if he's going to go with, like, an internal candidate or an external candidate. Obviously, there are some very, very qualified internal people. Dana Walden comes to mind, or whether he's going to look externally. But he definitely has to think about it from day one.
DAVE BRIGGS: Find his Captain America. Obviously, Iger was defined by acquisitions. We've talked about them, Lucasfilm namely, Marvel, Pixar. Could there be any acquisitions out there in these next two years? What might they be?
GEETHA RANGANATHAN: I mean, I can't rule anything out. You know, Bob Iger is going to take a very hard look at the company. There's already this going-- this issue going on with Huhu where Disney owns 66%. The rest of it is owned by Comcast. And they have to buy Comcast out. But they have to pay $9 billion. So that's one issue on the table. There is the issue with ESPN. So remember, this is the leading Sports Network in the world, but it is bleeding subscribers.
However, it is a cash cow for Disney. It brings in about $4 and 1/2 billion in profit every year. But there has been this lingering question about what they do with ESPN. Do they just spin it off? Do they sell it? So, again, that's something that Bob Iger is going to have to look at very, very closely. And then content, do they go after more content? Do they go after more studios? I doubt there will be anything imminent as far as acquiring more content goes. But you can never say never.
SEANA SMITH: Geetha, you brought up spinning off ESPN. Do you think that makes sense?
GEETHA RANGANATHAN: It's really a hard question because you kind of need profits from ESPN to support the streaming aspirations of this company. And remember, I mean, this probably is going to be the biggest streamer in the world, along with Netflix. And they're spending something like $30 billion in content costs year after year. So, you know, ESPN obviously is a huge profit center.
But at the same time, it's a huge cost center. They're spending about $9 to $10 billion in sports rights year after year. So, again, it's something where Bob Chapek-- I'm sorry, Bob Iger will kind of have to take a look and see what are the sports rights that they should be keeping, what are some of the sports rights that maybe they need to let go, and then whether the ESPN business even kind of makes sense for them longer term.
SEANA SMITH: Well, it'll certainly be interesting to watch the moves that Bob Iger makes. Again, Disney shares closing up just about 6%. Geetha Ranganathan, thanks so much for joining us. Really appreciate it.
