Good morning.
Can Disney get its mojo back? Mickey’s kingdom has lost its magic in recent years. Despite Bob Iger’s return as CEO, the stock is still trading at 35% below its level of four years ago. Most commentary has focused on the foot faults of former CEO Bob Chapek, who had a tin ear for the concerns of employees, board members, political partners, customers, and just about everyone else. But Fortune’s Shawn Tully has dissected the company’s problems, and says they go much deeper than stakeholder mismanagement. Citing research by Nelson Peltz’s Trian, which has taken a stake in Disney, Tully notes three problems in particular that will be difficult to fix:
- The acquisition of 21st Century Fox in 2019: Disney thought it needed Fox’s library of content to fuel the launch of its streaming service. But the Trian research suggests Disney vastly overpaid, forking over some $52 billion to buy the studios from the Murdoch family at 26 times EBITDA.
- Disney focused on subscriber growth at the expense of profitability, participating in a kind of streaming arms race that was cheered at first, but now is getting a second look. Disney spent hugely on marketing to sign up unprofitable customers.
- Chapek instituted a matrix structure that separated control of expenses—which lie with the content creators—from control of revenues, now centralized in Disney Media and Entertainment Distribution. That further cut the connection between revenues and costs.
