Disney upends activist investor Nelson Peltz. Now it’s real work time

Disney Shareholders overwhelmingly voted to retain the company’s current board at Wednesday’s annual meeting, suggesting they believe current CEO Bob Iger has a plan to raise shares and install a strong successor.

Now Iger will have to prove it, or he risks facing another activist campaign this time next year.

Iger can show progress in a number of areas over the next 12 months. It starts with turning its streaming services into a profitable unit, explaining ESPN’s digital strategy, scoring some box office hits and choosing a successor with a transition plan.

If Disney struggles to show investors that the entertainment giant has a coherent strategy, or if Iger once again pushes back on the succession, activist investors could knock on the company’s door again at the annual meeting next year to demand change.

“They still have the same problems as before, which are really industry problems,” said Doug Creutz, an analyst at TD Cowen. “Direct-to-consumer streaming is simply economically inferior to the old linear package model, which is disappearing. They have to try to get by.”

Disney announced earlier this year that it expects to make a profit in its streaming television business in its fiscal fourth quarter of this year.

This would mark a milestone for the company, which launched Disney+ on November 12, 2019. It would be the first time Disney has shown it can make money through Disney+, Hulu and ESPN+.

Disney will need to maintain and grow its streaming profits to justify Iger’s five-year-old strategy of going all-in on the segment.

Iger is confident that Disney will make streaming profitable by the end of the fiscal year stems from a drastic reduction in content costs, which includes new films, spending on sports rights and television production. Disney said in November that it was targeting an “annualized entertainment content spending reduction goal” of $4.5 billion.

“What they need to do next is repair the streaming losses,” said Laura Martin, an analyst at Needham & Co. “They still need to cut costs on the streaming side to get to profitability.”

Disney has implemented a two-pronged digital strategy for ESPN. For decades, Disney raked in billions by keeping ESPN exclusive to the cable package.

Those days are almost gone.

In fall 2024, Disney plans to launch a small sports package that includes ESPN’s linear network, as well as Warner Bros. sports channels. Discovery and Fox. The digital streaming service, whose price has not yet been set, will likely cost between $45 and $50 per month, CNBC reported in February. Disney owns a third.

ESPN will then launch its own flagship streaming service in fall 2025. It will include new personalized features aimed at sports bettors and fantasy sports players. The Athletic reported last month that the service would likely cost $25 or $30 per month.

Disney risks confusing consumers with its multiple offers and will have to roll out its new products with clear messages. Disney has already offered ESPN+, a sports streaming service that offers some, but not all, of ESPN’s content. It costs $10.99 per month and can be bundled with Disney+ and Hulu.

ESPN will also remain a vital part of the cable package. Subscribers will want to know what they’re paying for and what content they’re and aren’t getting with their extra subscription dollars.

Disney is mired in a years-long box office crisis, from live-action failures to Pixar disappointments, from Marvel fatigue to the absence of Star Wars (the last theatrically released film was released in 2019).

Disney hired David Greenbaum, former co-chairman of Searchlight, on February 26 to take over as chairman of Walt Disney Motion Picture Studios, replacing Sean Bailey. He will report to Disney Entertainment co-chairman Alan Bergman, who is in the hot seat to change the division’s fortunes.

Aside from 2022’s “Avatar: The Way of Water,” which Disney acquired as part of its $71 billion deal for a majority of 21st Century Fox, the company hasn’t seen a film generate more than a billion dollars since the last Star Wars release. in 2019, according to Comscore data. Sony produced and distributed “Spider-Man: No Way Home,” which grossed $1.9 billion, although Disney’s Marvel Studios was a co-producer.

Several big-budget franchise films have failed. “Indiana Jones and the Dial of Destiny” generated $378 million worldwide in 2023. “Ant-Man and the Wasp: Quantumania” grossed $476 million worldwide, an unusually low amount for a Marvel movie (until “The Marvels” made just over $200 million by the end from last year). And Pixar’s “Lightning Flash” has collected less than $250 million worldwide in 2022.

Trian Partners’ Nelson Peltz, who failed to join Disney’s board on Wednesday after receiving just 31 percent of the vote, publicly questioned what he called Disney’s “woke” content strategy. Disney. The company’s creative team has actively sought to create films and television shows centered around people of color as well as exploring narratives outside of heteronormativity.

“People will watch a movie or a show to be entertained,” Peltz said in an interview with the Financial Times. “They’re not going to look for a message.”

Iger said Wednesday that while the company wants to infuse positive messages into its content, that shouldn’t be the first priority.

“Our job is all about entertaining and telling great stories,” Iger said at the company’s annual shareholder meeting. “We continue to positively impact the world and inspire future generations, just as we have for over 100 years.”

The biggest existential question for Disney is who will succeed Iger as CEO. This was Trian’s strongest argument for giving Peltz a seat on the board. Iger postponed his retirement as CEO five times, and when he left in 2020, he remained chairman for 22 months, clashing with his successor Bob Chapek as the two vied to co-lead the company during the pandemic.

Iger returned in late 2022 as CEO when the board fired Chapek. Iger’s plan for handing Disney over to a new leader was to name a successor around early 2025 and then stay on to teach that person the job, CNBC reported last year.

He’ll want to make sure this person is ready to lead a growing company, with a thriving parks business, a declining legacy television unit, a still-young streaming division, and a struggling but legendary movie studio. Internal candidates include Bergman, ESPN Chairman Jimmy Pitaro, Parks and Resorts Chairman Josh D’Amaro, and Disney Entertainment Co-Chairman Dana Walden, who could be the first female CEO in its 100-year history of the company.

“The problem is, how do we replace Bob Iger? They’ve been trying to do that for 10 years, and it’s very difficult for several reasons,” said Creutz of TD Cowen. “Bringing someone from outside into Disney, which has a very strong and unique culture, is risky. Then you end up with internal candidates, and if there’s no one internally who you think, can take on the role, you have a problem.”

The council has now been given the green light to continue its search process. It’s a win for Iger, and shareholders voted Wednesday thinking it was a win for them, too.

— CNBC’s Sarah Whitten contributed to this report.

WATCH: Disney Needs to Further Cut Costs on the Streaming Side to Achieve Profitability, Says Needman’s Martin