Bob Iger Sets ‘Transformation’ at Disney With Big Job Cuts Ahead
CEO sees $5.5 billion in cost cuts coming; 7,000 jobs impacted
The Walt Disney Co. CEO Bob Iger promised a “transformation” of the company following a fiscal first quarter in which the company lost more than $1 billion on its direct-to-consumer business and the number of subscribers to Disney Plus fell for the first time.
A new structure has the company divided into three core business segments, one for
entertainment, headed by Alan Bergman and Dana Walden; one for ESPN, headed by Jimmy Pitaro; and one for the theme parks, helmed by Josh D'Amaro. Despite a structure that might invite questions, Iger said the company was not considering a sale or spinoff of ESPN.
Iger also said the company will be making big cost cuts totaling $5.5 billion and 7,000 jobs. The cuts include $3 billion in content costs, not including sports.
The aggressive changes come with activist investor Nelson Peltz breathing down Disney's neck. Disney stock price rose more than 5% in after-hours trading.
“After a solid first quarter, we are embarking on a significant transformation, one that will maximize the potential of our world-class creative teams and our unparalleled brands and franchises,” Iger said. “We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.”
Disney’s direct-to-consumer streaming business lost $1.05 billion in the quarter, nearly double the year-ago loss of $593 million. Direct-to-consumer revenue rose 13% to $5.3 billion.
“Since my return, I have drilled down into every facet of the streaming business to determine how to achieve profitability and growth,” Iger said. “So with that goal in mind we will focus even more on our core brands and franchises which have consistently delivered high returns aggressively. Our general entertainment content, will reassess all markets we have launched in and also determine the right balance between global and local content. We will adjust our pricing strategy including a full examination of our promotional strategies. We will fine-tune our advertising initiatives on all streaming platforms.”
Iger added that the company could increase the use of legacy distribution opportunities to increase revenue and more effectively market content.
The cost-cutting plan will result in a reduction of annualized non-content related expenses of $2.5 billion, chief financial officer Christine McCarthy said. She said 50% of the cuts will come in marketing, 30% in labor and 20% in technology procurement.
At the end of the first quarter, Disney Plus had 161.8 million subscribers, down from 164.2 million at the end of the last quarter and 164.2 million a year ago
Domestic Disney Plus subscribers edged up to 46.6 million from 44.5 million at the end of the previous quarter and 46.4 from a year ago.
ESPN Plus had 24.9 million subscribers, up from 24.3 million in the previous quarter and 24.3 million a year ago
Hulu had 48 million subscribers, up from 47.2 million subscribers last quarter and up 2 from a year ago. It had 43.5 million SVOD-only subscribers, up from 42.8 million last quarter and up 2% from a year ago. Hulu Plus Live TV had 4.5 million subscribers, adding 100,000 subscribers from the previous quarter and up from 4.4 million subscribers a year ago.
Net income for the quarter rose to $1.279 billion, or 70 cents a share, compared to $1.1 billion, or 63 cents a share a year ago.
Revenues rose 8%, to $23.5 billion.
Disney’s Media and Entertainment Distribution division posted an operating loss of $10 million, compared to income of $808 million. Revenue rose 1% to $14.8 billion.
Operating income at Disney’s linear networks fell by 16% to $1.255 billion. Revenues fell 5% to $7.293 billion.
Domestic channel revenue fell 1% to 6.1 billion. ABC has lower advertising revenues, but showed an increase in affiliate revenue. ■
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Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.