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Bob Iger Makes Big Changes at Disney

noElson Peltz A man who is used to winning. So when his hedge fund, Trian Partners, dropped its proxy fight for a Disney board seat on Feb. 9, it wasn’t a capitulation. A day earlier, Disney’s newly-returned Bob Iger CEOAnnouncing sweeping changes to the entertainment powerhouse that Trian was looking for.

The new organizational structure will shift power from the hands of the budget-minded back to the creative team. That reversed changes under Bob Chapek, whom Mr Iger hand-picked as his successor in early 2020 before replacing him in November. Operating costs will be cut by $2.5 billion and content spending will be cut by a further $3 billion, or 8% of spending; 7,000 employees will leave. In an effort to stem the financial damage to its Disney+ streaming service, Mr. Iger raised subscription prices in the United States by 38% in December. Disney would stay out of a “global subscriber arms race,” he said. Instead, he hinted that it might license more of its catalog to competing platforms for profit. On top of that, Disney will restart paying dividends by the end of 2023.

Still, Mr Iger left several key questions unanswered. The first question was about Disney’s long-term plans for streaming, which he hasn’t clarified yet. Mr Iger has said he wants to focus on “core brands and franchises”. Their online homepage is Disney+. He also wanted to avoid “indiscriminate” general entertainment. That’s the property of Hulu, the streaming company in which Disney owns two-thirds. Disney’s deal with cable giant Comcast, which owns the remaining third, expires in 2024. Hulu’s slowing growth and falling margins suggest the status quo is no longer working. Comcast’s boss said in September that he would be willing to buy Disney’s stake “if it were to be sold.” Mr. Iger has to decide whether to ditch Hulu’s programming, which is more popular with older viewers and women than Disney+’s, according to data firm Parrot Analytics, or pay about $9 billion for a stake in Comcast.

Disney’s second unanswered question concerns another part of its media empire, ESPNThe sports network has been less than comfortable with Disney’s strategy, first formulated by its founder Walt Disney in 1957, of monetizing creative franchises across multiple formats and distribution channels.Mr Iger’s split decision ESPN Exiting as a separate business unit is a tacit admission of its awkward status.For now, Mr Iger says Disney has no intention of breaking up ESPNThat could change if the company decides to make another major acquisition, whether it’s Hulu or the fast-growing video game market.Considering Disney’s huge net debt of $40 billion, the sale ESPN May need help funding any transactions.

With 22 months left on his contract, Mr. Iger has a lot to work through, and in the meantime he must find a more capable successor than Mr. Chapek. Disney’s market capitalization of around $200 billion is up 19% since his return, suggesting investors have more confidence in him than in another Bob (see chart). But they may not trust him as much as they did in their younger days: The company is still worth $60 billion less than when he retired in early 2020.

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