Disney flips activist investor Nelson Peltz. Now it's time for real action

Iger could show progress in a number of areas over the next 12 months. That starts with turning its streaming services into a profitable unit, explaining ESPN's digital strategy, generating some box office success and choosing a successor with a transition plan.

If Disney struggles to show investors that the entertainment giant has a cohesive strategy, or if Iger fires succession again, activist investors may knock on the company's door again during next year's annual meeting to demand change.

“They still have the same problems they had before, which are really industrial problems,” said Doug Kreutz, an analyst at TD Coin. “Direct to consumer streaming is economically inferior to the old linear package model, which is disappearing. They have to try to manage that.”

Disney said earlier this year that it plans to turn a profit in its streaming TV business in the fiscal fourth quarter of this year.

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

Disney will need to maintain and grow its streaming profits to justify Iger's five-year-old strategy to engage in the segment.

Iger is confident that Disney will make streaming profitable By the end of the fiscal year, this stems from aggressive cuts in content costs, which include new films, spending on sports rights, and television production. Disney said so in November He was targeting “Goal to reduce annual spending on entertainment content” by $4.5 billion.

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

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

Those days are almost over.

In the fall of 2024, Disney plans to launch a slim sports package that includes the linear network ESPN, along with sports channels from Warner Bros. Discovery and Fox. The digital streaming service, which has not yet been priced, will likely cost about $45 or $50 per month, CNBC reported in February. Disney owns a third of it.

ESPN will then launch its flagship streaming service in the fall of 2025. It will include new custom features that meet the needs of sports bettors and fantasy sports players. The athlete mentioned Last month this service probably cost $25 or $30 per month.

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

ESPN will also remain a core part of the cable package. Subscribers will want to know what they're paying for and what content they do and don't get with the extra subscription dollars.

Disney has been mired in a long-term box office slump, from live-action failures to Pixar disappointments, and from Marvel fatigue to the lack of… Star Wars (the last movie released in theaters came in 2019).

Disney hired David Greenbaum, former co-president of Searchlight, will take over on February 26 as president of Walt Disney Studios Motion Pictures, replacing Sean Bailey. He will report to Disney Entertainment co-president Alan Bergman, who is charged with turning around the division's fortunes.

Other than 2022's “Avatar: The Way of Water,” which Disney acquired as part of its $71 billion deal for the majority of 21st Century Fox, the company hasn't had a film generate more than $1 billion since the last release of “Star Wars.” In 2019, according to Comscore data. Sony Corporation produced and distributed “Spider-Man: No way home“, which grossed $1.9 billion, although Disney's Marvel Studios served as a co-producer.

Many big budget franchise films have flopped. In 2023, “Indiana Jones and the Dial of Destiny” grossed $378 million globally. “Ant-Man and the Wasp: Quantumania” took in $476 million worldwide, which is an unusually low number for a Marvel movie (until “The Marvels” reached just over $200 million late last year). . Pixar's “Lightyear” will collect less than $250 million globally in 2022.

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

“People go to see a movie or show for entertainment,” Peltz said. Interview with the Financial Times. “They're not going to get a message.”

Iger said Wednesday that although the company wants to instill positive messages in its content, that should not be the first priority.

“Our mission is to entertain first and foremost, and to tell great stories,” Iger said He said During the company's annual shareholders meeting. “We continue to make a positive impact on the world and inspire future generations, just as we have done for more than 100 years.”

The biggest existential question for Disney is who will follow Iger as CEO. This was Trian's strongest argument for Peltz to get a seat on the board. Iger has postponed his retirement as CEO five times, and when he left in 2020, he stayed on as chairman for 22 months, sparring with his successor Bob Chapek as the two vied to take part in running the company during the pandemic.

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

He'll want to make sure this person is prepared to run an expanding company, with a thriving landscaping business, an old, declining television unit, a still-young broadcast division, and a struggling but legendary movie studio. Internal candidates include Bergman, ESPN President Jimmy Pitaro, Parks and Resorts President Josh D'Amaro, and Disney Entertainment Co-Chairman Dana Walden, who could be the first female CEO in the company's 100-year history.

“The problem is how do you replace Bob Iger? They've been trying to do this for 10 years, and it's very difficult for multiple reasons,” TD Coin's Kreutz said. “Bringing someone from the outside into Disney, which has a strong, unique culture, is risky. Then you turn to internal candidates, and if there's no one internally that you think can handle that role, you have a problem.”

The board has now been given the green light to continue the search. This is a win for Iger, and shareholders voted Wednesday that they think it's a win for them, too.

— CNBC's Sarah Whitten contributed to this report.

Watch: Disney still needs to cut costs on the streaming side to reach profitability, says Neidman's Martin