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Why Bob Iger’s second act at Disney looks brighter after a rocky start

After a bruising year of Hollywood strikes, heartbreaking job cuts and inventory cuts, Disney Chief Executive Bob Iger is finally racking up some victories.

While posting higher-than-expected profits last week, Iger made several announcements intended to keep the Burbank giant firmly anchored in pop culture: ESPN will launch a new sports streaming service next fall. Disney+ will be the streaming platform for Taylor Swift’s concert tour film. And Captain America and Baby Yoda could soon infiltrate the hit online game “Fortnite,” thanks to Disney paying $1.5 billion for a minority stake in Epic Games.

Investors worried about Disney’s problems are starting to feel some relief. The company’s stock is up 20% since the start of the year. Disney had its best day since 2021 on Wall Street following the release of results. On Monday, shares gained nearly 1% to $109.29.

The strong results could help thwart activist investor Nelson Peltz’s Trian Fund Management and a second shareholder, Blackwells Capital Group, both of which are trying to engineer a boardroom shakeup at the meeting. Disney Shareholders’ Annual Meeting on April 3.

“Whatever chances these activist investors have for success are being buried by 100,000 tons of Disney carbonite,” Doug Creutz, a media analyst at TD Cowen, said in an interview after the results were released. “The market likes what it sees.”

On Monday, Disney sent a letter to shareholders touting the “significant steps Disney is taking to complete a strategic transformation of the company.”

However, analysts said Iger still has work to do to get the Mouse House in order.

“They’re not out of the woods yet,” Creutz said. “The question is: will they be able to show sustained growth in the entertainment and sports sector?

Nonetheless, Disney demonstrates that, among Hollywood’s traditional film and television studios, it appears well-positioned to withstand the disruption caused by the shift to streaming.

Traditional rivals including Paramount Global and Warner Bros. Discovery, are struggling to maintain their position following Netflix’s takeover of the television industry and the arrival of global giants Apple and Amazon into the streaming arena.

The rebound in Disney shares has more to do with the company’s fundamentals than Iger’s announced initiatives, including his partnership with Fox Corp. and Warner Bros. Discovery to introduce a new streaming service with more than a dozen traditional cable channels focused on sports, ESPN and TNT, among others, analysts say.

Iger’s cost-cutting efforts throughout the year, including cutting 8,000 positions, helped improve profits.

Financial losses from the streaming service business narrowed to $216 million in the most recent quarter, compared to more than $1 billion in the same period a year earlier. Disney reiterated that its streaming business will post profits by September.

“Looking at our results this quarter, we can say with confidence that our strategy is working,” Iger said during last week’s first-quarter earnings conference call.

Disney also revealed that it has secured the streaming rights to an extended version of Swift’s Eras Tour concert film, which will debut March 15 on Disney+. This should help fill gaps in the company’s program release pipeline, caused in large part by last year’s writers’ and actors’ strikes. Disney+ has 111 million subscribers worldwide (down slightly from the previous quarter).

But the strength came from Disney’s workhorses: the vaunted theme park, cruise line and consumer products division, which generated a record profit of $9.1 billion in the quarter, in partly due to improved economic conditions. The division’s operating profit increased 8% to $3.1 billion. International parks, including those in Shanghai and Hong Kong, as well as Disney Cruise Line, have led the way. National parks, which increased their prices, showed slightly lower results.

Chief Financial Officer Hugh Johnston, who joined the company in November from PepsiCo, and Iger pleased Wall Street with news that the company planned to spend $3 billion buying back stock.

“It finally feels like the company has some financial control, in a way that Disney hasn’t felt in several years,” said Michael Nathanson of research firm MoffettNathanson, adding that the Activist shareholders are also entitled to some credit.

Disney hopes the market reaction will blunt calls from Peltz and Blackwells to shake up the board.

Peltz wants to get rid of two board members — Michael BG Froman, president of the Council on Foreign Relations, and Maria Elena Lagomasino, CEO of WE Family Offices, which serves wealthy families — to make room for him and Jay Rasulo, a former Disney CFO. Trian beneficially owns $3 billion in Disney common stock, amassed largely by longtime Marvel Entertainment chairman Ike Perlmutter, who was ousted from Disney last year.

Blackwells, for his part, called Trian’s list “uninspiring.” The company wants to split Disney and has named three candidates to the board: media veteran Jessica Schell, real estate expert Craig Hatkoff and TaskRabbit founder Leah Solivan.

Disney called on shareholders to ignore the two activist groups and support its slate of 12 board members, including Iger, at its annual meeting. The company enlisted Donald Duck’s brainless uncle, Professor Ludwig Von Drake, in a video on votedisney.com to demonstrate that Disney’s current board members are up to the task.

Peltz, for his part, is not backing down. “It’s déjà vu all over again,” Peltz’s company said in a statement. “We saw this movie last year and didn’t like the ending.”

Last week’s results gave Disney a welcome victory following a recent legal setback. A federal judge in Tallahassee, Fla., last month dismissed the 1st Amendment lawsuit the company filed against its nemesis in the culture wars — Florida’s Republican Gov. Ron DeSantis.

Disney tried to argue that DeSantis’ changes to Florida’s land use laws were retaliation against the entertainment giant for publicly criticizing Florida’s so-called “Don’t Say Gay” law two years ago . (Disney quickly appealed the judge’s decision.)

Disney also faces challenges on other fronts.

The company continues to grapple with the devastation caused by linear television’s audience declines, which have hit the ABC network and ESPN, its longtime cash cow.

Disney is trying to walk a fine line by preserving the lucrative pay-TV package while separately offering products with fewer channels to sports fans who don’t want to pay more than $100 a month.

Disney plans to bring flagship ESPN channels directly to consumers in fall 2025. And this coming fall, the company will bring its linear sports channels to the still-unnamed streaming service that Disney will co-own with Fox and Warner Bros. Discovery. The companies haven’t announced pricing, but some analysts estimate it could exceed $50 per month in an effort to attract cord-cutters and “non-corders.”

What remains particularly concerning is that Disney’s film side has struggled, leading Iger to acknowledge late last year that the company had lost focus in the rush to produce content for its streaming services.

“There is a surplus of underperforming films, but the company has said it will focus more on quality than quantity,” said Jeffrey Sonnenfeld, senior associate dean of the Yale School of Management. “That focus is really important.”

The company, during its earnings conference call, announced that a sequel to “Moana” — the 2016 animated film that Iger said was the most released film of 2023 in the United States — would be released in theaters in November. It was originally intended as a series to be released on Disney+, but the company changed course and decided to release the sequel as a feature film in theaters. Several other Disney sequels are also in the works, following strike-related delays.

Raymond James analyst Ric Prentiss pointed to the partnership between Disney and Epic Games as another way to attract advertisers who are clamoring to reach the younger demographic.

“If you want to become a relevant, growing player, you better have the game in your bribes,” Prentiss said, adding that Disney’s game is “not just about making a game, but to create an environment in which people spend a lot of time.” time.”

Improving the movie slate, guiding ESPN toward streaming, and reducing streaming losses are essential.

“Iger is doing well to see his stocks rebound after just a year back on the job,” Sonnenfeld said. “A recovery generally takes three years. »

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