Hey there weekend warriors,

Welcome to Saturday Deep Dive #3. Last weekend we tackled the AI chip market (and whether it’s a bubble). This week we’ll get into wtf is happening at Disney…

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As always, I’d love your brutally honest feedback and would be interested to hear what you’re interested in hearing about next week.

Keep on snapping necks and cashing checks,

— tyler

Not great, Bob Iger

It feels like Disney is at a bit of a crossroads...

Linear TV is on the chopping block, there’s a geriatric blood-sucking vulture at the park’s gates, and Bob Iger is reportedly just a few years away from leaving… again.

What could possibly go wrong?

How’d we get here?

Disney’s Spotify Wrapped probably looked like a cry for help in 2023 (lots of Olivia Rodrigo, presumably)…

The year of our lord 2023 began with some momentum. Bob Iger re-took the reigns in late 2022 and came in hot. First, there was the success of the new Avatar film, which became a top 10-grossing film of all time.

And parks put the team on its back. Pent-up demand from ‘rona boi lockdowns spilled over into ‘23 and had people sh*tting in line instead of missing the chance to ride It’s a Small World.

That said, there was a reason there was a coup to replace one Bob with another…

The former Bob had tried to consolidate power away from the creatives, much to the chagrin of literally everyone at the company. Plus, under his supervision, expenses ballooned. That forced Iger to implement a $7.5B cost-cutting plan and lay off nearly 7k employees. You hate to see it…

2023 will also be remembered for three consecutive quarters of falling Disney+ subscribers and the company finally giving us a glimpse into ESPN’s financials. An updated org structure broke out “sports” for the first time ever when DIS reported in November. Turns out they weren’t lying about it absolutely printing money.

What’s to like?

+ “Oh my God, I’m almost there…”

The streaming service is so close to becoming profitable. Ok, well it’s still a few hundred million dollars away, and lagging behind the undisputed champ (Netflix, which is already profitable). But it’s moving in the right direction.

Speaking of moving in the right direction… Disney+ also returned to subscriber growth in the most recent quarter, adding 7M subs… which was well above expectations.

Iger and Co. are also experimenting with cracking down on password sharing as a way to boost the top and bottom lines. I wonder where they got that idea from…

It probably doesn’t hurt that Disney has some other divisions that can help carry the financial burden of its war with Netflix and Peacock (jk, no one subscribes to Peacock…).

+ Imagine giving up the licensing rights to Modern Family and Shark Tank… 

Bob Iger is reportedly looking to trim the fat in Disney’s media portfolio by offloading ABC and some of its other deadbeat linear TV channels (looking at you Nat Geo and A&E). There have reportedly been offers for ABC in the $10B range. On paper, it would be a brutal loss, considering it paid $19B… in 1996.

But growth is expected to stagnate (at best), and ad revenue fell again in the most recent quarter. So, Disney might be better off (spoiler: is better off) cutting its losses. The move would allow the company to refocus on the future of entertainment (spoiler: streaming).

+ Putting the ‘leader’ in Worldwide Leader…

Rumors have been swirling about the future of ESPN. Disney recently re-jiggered its divisions to break out sports, which could be a sign that it’s looking to carve it out or sell it outright. According to B of A, it could fetch ~$24B on the open market.

But Bob Iger is giving mixed signals, though. He pledged to double down and make ESPN the preeminent sports brand in the world. But has also floated the idea of selling a stake in the brand. Potential partners (reportedly) include sports leagues like the NBA, which would certainly make securing live sports rights easier.

Plus, a full streaming ESPN is not a question of if, but when. And, bonus for the degens out there: ESPN has finally made its foray into sports gambling…

+ One word, eight letters… say it and I’m yours: dividend. 

Sure, it was an overreaction to Nelson Peltz’s threats… but Disney has reinstated its dividend after three longgg years And the only thing investors like more than dividends is a company announcing a major AI breakthrough (which is usually just a ChatGPT FAQ messenger on its homepage…)

What’s NOT to like?

– Hear me out: Taylor Swift and Beyoncé in the Marvel Cinematic Universe…

Disney’s movie studio has hit a bit of a dry spell. The House of Mouse followed up The Marvels with a pathetic attempt at capturing the imagination of the world’s children with Wish… which absolutely bombed. And it’s hard to conceive how Disney can be that bad at making movies when I’ve seen my 3-year-old watch another kid play with toys on YouTube (on mute) for like 6 hours straight. You guys literally had one job…

– Brooklyn Bechkam’s father-in-law is about to have his way with Disney…

Nelson Peltz is coming for at least two board seats at Disney. He launched a proxy fight this week that could get expensive and threatens to open a can of worms. You see, Nelson has aligned himself with fired Marvel boss Ian Perlmutter, and the two want blood (in addition to the board seats…).

– Bob Iger’s about to organize a game of boar on the floor…

There are major question marks around Bob’s succession plans (which is one of Nelson Peltz’s bones to pick). At a NYT conference this week, Bob said he’ll be gone (again) by the end of 2026. Another sh*tshow at the end of another Bob Iger stint could be a disaster.

But what would be even worse is a campaign by Nelson Peltz to oust him…

– The economy could rain on Disney’s parade too. Let’s say, for example, that soft landing turns out to be harder than a wedding d*ck. Well, the first thing people tend to stop spending on is expensive trips that cost a firstborn child.

Let’s not forget about the competition…

– Disney is doing battle on a handful of fronts. And that’s not even counting the State of Florida, which is still trying to make Walt Disney wish he never made a deal with the devil in the Sunshine State.

DIS is getting its hand-to-hand combat on with Paramount, Comcast, Netflix, Apple, and Amazon in the streaming and entertainment game. Meanwhile, it’s feeling the pressure from Six Flags, SeaWorld, Hilton, Marriott etc. in the parks and hospitality space.

What do the “experts” have to say?

Let’s hear from the masters of the universe…

MoffettNathanson’s Michael Nathanson: “The things that Iger was brought on to fix now seem on the cusp of getting fixed. Disney’s actions to reduce expenses and production spend, while lagging the negative revisions in revenue, should help improve cash flow and margins in FY 2024 and beyond.”

Deutsche Bank’s Bryan Kraft “believes Disney has ‘turned the corner’ to sustained positive earnings growth with the positive inflection in the September quarter. The firm is a buyer of the stock on improving fundamentals, including continued strong theme park growth and improving streaming profitability, partially offset by declines in linear TV and a light 2024 film slate. It reduced its above-consensus estimates, driven by a slower ramp toward streaming profitability, but remains positive on the shares at current valuation levels.”

Evercore’s Vijay Jayant said “We continue to believe Disney has a strong hand in the pivot to streaming longer term, but it is difficult to have confidence in the pace of earnings growth given the wide range outcomes for the company’s growth vectors and legacy linear assets.”

🔥Tyler’s take…

It’s kind of hard to imagine Disney could have a rougher go of it than it did over the past few years, starting with COVID closing parks (… short of Disney Cruise lines dealing with Waystar Royco scandal). Not to mention, the added pressure from Nelson Peltz will force Mickey and Minnie to get their sh*t together.

Oh, and I have a hard time betting against Bob Iger. Dude has ice water running through his veins. For f*ck’s sake, this is the same guy who bought Pixar, Lucasfilm, and Marvel. All he does is win… except when picking successors, apparently.

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