Disney’s Iger may have to cut costs as streaming loses money

FILE PHOTO: Disney's Chief Executive Officer Bob Iger attends the opening event of Disney-Pixar Toy Story Land, the seventh themed land in Shanghai Disneyland in Shanghai, China April 26, 2018. REUTERS/Aly Song/File Photo

By Aditya Soni and Eva Mathews

(Reuters) – 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 ouster of CEO Bob Chapek and appointing Iger, 71, to a two-year contract to return the company to growth.

The move evoked other return engagements such as Steve Jobs’ 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 of that could be Disney+, the streaming service that Iger helped launch in 2019. Losses at the unit more than doubled in the last reported quarter to $1.5 billion.

The business has become a drag on earnings as Disney spends heavily on content to attract subscribers, testing investor patience and contributing to a 40% slide in its shares so far this year.

GRAPHIC: Disney’s streaming losses mount in the last 3 years – https://graphics.reuters.com/DISNEY-RESULTS/byvrlogozve/chart.png

“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 concern on 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.

Still, Disney shares were up 7.5% on Monday, a sign of confidence in the executive who led the company for 15 years.

GRAPHIC: Magic returns – https://graphics.reuters.com/WALTDISNEY-CEO/lgpdkwogavo/chart.png

GRAPHIC: Disney+ vs. Netflix subscriptions – https://graphics.reuters.com/WALTDISNEY-RESULTS/zjvqjkylmpx/chart.png

(Reporting by Eva Mathews and Aditya Soni in Bengaluru; Editing by Anil D’Silva)

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