Disney is growing up. That is, Disney will no longer spend its money so recklessly — as if the entertainment giant didn’t have enough money to spend. CEO Bob Iger and CFO Christine McCarthy made a statement during Disney’s quarterly earnings call that will have implications for shareholders and everyone watching Disney+.
The House of Mouse has struggled to please its constituent shareholders of late, and the media portion of the company (unlike the parks and merchandise) has been weak when it comes to making money. Bob Iger has worked very hard since being reinstated as CEO to return Disney’s media assets to their reigning place in the Magic Kingdom. Rumors have been swirling that Disney could be dropping Hulu, but right now that may not be the case.
Bob Iger and Christine McCarthy have outlined in simple terms their plan to make Disney a different kind of company. They are going to cut budgets and content on Disney+. The executives noted that they would add the Hulu library to the Disney+ streaming site, but the company will reduce the number of shows it produces for the streamer over the next two years.
A new disney
Bob Iger recently returned to the helm of Disney after former custodian Bob Chapek was believed to have caused irreparable damage to the company. Iger has signed a short-term contract to hopefully save Disney. Over the next two years, he aims to restore shareholder confidence, raise stock prices and find someone to replace him.
Part of his grand plan was revealed when he and CFO Christine McCarthy made an announcement during the quarterly earnings call. In fiscal 2022, Disney spent just under $30 billion on content. Iger and McCarthy have aimed to reduce that number by $3 billion. Variety quoted McCarthy:
“We are reviewing the content of our (direct-to-consumer) services to align with the strategic changes in our approach to content curation, […] Going forward, we plan to produce smaller amounts of content in line with this strategic shift.”
That phrase, “strategic changes in our approach to content curation,” means that Disney will cut much of the content they produce for 2024 and 2025. Unfortunately, it also means certain shows will be cut from Disney+ and Hulu. This is because certain shows are too expensive to maintain when looking at the money they make for Disney compared to what they could cost in residual payments, royalties, and licensing fees.
Many of these payments are hot-button issues for striking members of the WGA. And while nothing in the business world happens in a vacuum, this could be seen more as an inventory by Disney than a response to the strike.
Disney hasn’t had the biggest return on content in a while. The revenue that regularly makes the company the most money is its parks, experiences and products. And this kind of cleaning they do is still new in the streaming age. Iger noted that Disney would have to grow up to enter this new era of content production.
“This is part of the maturation process as we grow into a company we had never been in before,” said Iger.
Disney makes the right decision to organize themselves as they come to a point where they have to make decisions about Hulu.
Disney and Hulu
Disney is currently planning to make major changes to the way they handle Hulu. Iger recently revealed his plans to integrate Hulu’s library into Disney+, hoping the move would boost subscribers for both platforms. But the idea has implications beyond what people see with their streaming membership. Disney’s CEO may have suggested a larger property owned by Hulu.
Disney has held a controlling stake in Hulu since 2019, but in their fragile state, rumors began to circulate that Disney might decide to sell their share of the streamer. In 2019, Comcast allowed Disney to take control of Hulu, with House of Mouse buying two-thirds of the streamer and Comcast keeping a third for itself.
In what would be an expected move to recover losses, many believed Iger had plans to sell Hulu back to Comcast. But this plan to integrate the streamer into Disney+ seems to imply that Disney will buy up Comcast’s remaining one-third share. Iger said:
“So where we’re going is one experience that would have general entertainment and Disney+ content together. How that ultimately unfolds is in the hands of Comcast and in the hands of any conversation or negotiation that we have with them. I don’t want to be predictive in any way in terms of when or how that ends.
When the two companies became their joint owners of Hulu in 2019, they agreed that one company would own all of Hulu by January 2024. is directly related to how many Disney+ subscribers bite the hook that Hulu will dangle on their streaming page.
Profitable content for Disney requires a new strategy in the streaming era, and at this point, planned cuts and integration seem like the right thing to do.