As Bob Iger comes back to Disney, he has new challenges

Saving Walt Disney Co this time will require Bob Iger to show off a different side to his character.

The legendary chief executive who transformed Disney into the most powerful entertainment company on the planet will need to show how quickly he can cut costs and restore profitability, analysts say.

Disney shocked investors late on Sunday evening by announcing the removal of CEO Bob Chapek and appointing Iger, 71, to a two-year contract to return the company to growth.

The stunning development comes two weeks after Disney’s quarterly financial performance fell well short of Wall Street expectations on both profit and revenue, a rarity, sending shares tumbling 12 percent. Shares of The Walt Disney Co are down 40 percent this year.

The company’s stock jumped 8 percent at the opening bell Monday, with the appointment of Iger effective immediately.

The move evoked other return engagements such as Steve Jobs’s return to Apple and Howard Schultz’s return to Starbucks in times of crisis.

“The bold move (Iger’s return) might feel like the right one. However, the business is at a different phase of growth,” PP Foresight analyst Paolo Pescatore said, adding that short-term measures might include restriction of some operations.

The most immediate target could be Disney+, the streaming service Iger helped launch in 2019. Losses at the unit more than doubled in the last reported quarter to $1.5bn.

The business has become a drag on earnings as Disney spends heavily on content to attract subscribers, testing investor patience.

“Disney+ … could probably do better with fewer end-state subscribers made up of super fans willing to pay high RPU (rates per user), which would generate much higher margins,” analysts at MoffettNathanson said.

They also pointed to ESPN as another target for deep cost cuts, including a review of all the upcoming sports rights as the network loses cable subscribers.

Activist investor Dan Loeb’s Third Point had also pushed a potential spin-off of ESPN when it took a stake in the company in August, although it later backed off the idea.

Some brokerages have also raised concerns about whether the two-year period Iger has agreed to return for would be enough to transform the business and find a successor.

“The problem is that Iger can’t stay on forever. He already bumbled the transition to Tom Staggs in 2016 and now (Bob) Chapek,” Rosenblatt Securities said.

Overnight change

The tumult atop Disney came quickly with reports that Iger was first approached by board members about a possible return Friday.

Iger separated completely from Disney near the end of last year after remaining on board for two years as executive chairman, helping to guide Chapek and to guarantee a smooth transition.

That transition was anything but smooth, and on Sunday, Iger agreed to a two-year contract to redirect Disney’s trajectory and to help find a new chief executive.

Iger was Disney’s public face for 15 years as chief executive before handing the job off to Chapek in 2020, a stretch in which he compiled a string of victories lauded in the entertainment industry and by Disney fans.

Chapek oversaw Disney during one of the most challenging periods in company history that began with a pandemic and ended, at least under Chapek’s rule, with spiralling inflation.

But his time as chief executive was also marked by what many saw as unforced errors for a company that, under Iger, appeared could do no wrong.