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Disney’s new CEO may have to cut costs to restore profits as streaming loses money -Newzflash

Bob Iger will show Wall Street a new side to his character as he returns to lead Walt Disney by cutting costs and restoring profits in just two years after spending money on acquisitions and a streaming business last time out.

The entertainment giant shocked investors late Sunday night when it announced the ouster of CEO Bob Chapek and appointed Iger, 71, to a two-year contract to return the company to growth.

The move prompted other return engagements such as Steve Jobs’ return to Apple and Howard Schultz’s return to Starbucks in times of crisis.

“The bold move (Iger’s return) may feel like the right one. However, the business is in a different growth phase,” PP Foresight analyst Paolo Pescatore said, adding that short-term measures may include curtailing some operations.

The most immediate target for that could be Disney+, the streaming service that Iger helped launch in 2019. Losses at the unit more than doubled in the last reported quarter to $1.5 billion (nearly Rs. 1,220 crore).

The business has become a drag on earnings as Disney spends heavily on content to attract subscribers, testing investor patience and contributing to a 40 percent drop in its shares so far this year.

“Disney+ … could probably do better with fewer end-state subscribers made up of superfans willing to pay high RPU (rates per user), which would generate much higher margins,” analysts at MoffettNathanson said.

They also pointed to ESPN as another target for deep cost-cutting, including a review of all upcoming sports rights as the network loses cable subscribers.

Activist investor Dan Loeb’s Third Point had also pushed a potential spin-off of ESPN when it took a stake in the company in August, though it later backed the idea.

Some brokerages have also raised concerns about whether the two-year period Iger has agreed to return would be enough to turn the company around and find a successor.

“The problem is Iger can’t stick around forever. He already bumbled the move to Tom Staggs in 2016 and now (Bob) Chapek,” Rosenblatt Securities said.

Still, Disney shares were 10 percent higher in premarket trading Monday, a sign of confidence in the executive who led the company for 15 years.

© Thomson Reuters 2022

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