Disney To Lay Off About 7,000 Employees as It Cuts $5.5 Billion in Costs

Robert A. Iger gave Disney’s corporate critics the equivalent of a punch in the mouth on Wednesday.

In his first earnings report since he came out of retirement to retake the reins of a troubled Disney, Mr. Iger unveiled a new operating structure for the company — one designed to galvanize its film and television studios while drastically cutting costs. As part of the restructuring, Disney expects to cut costs by $5.5 billion and eliminate roughly 7,000 jobs, or about 4 percent of its global total.

“We must return creativity to the center of the company, increase accountability, improve results and ensure the quality of our content and experiences,” Mr. Iger said on an earnings-related conference call with analysts.

Content production and distribution, including streaming, will be housed in a single division (instead of two, which were sometimes at odds), with the exception of sports. To that end, ESPN and its streaming offshoot will become a stand-alone unit for the first time, a move that was instantly interpreted as making the sports behemoth easier to spin off or sell, should Disney decide to pursue such action.

“We did not do it for that purpose,” Mr. Iger said. “ESPN continues to create real value for us. We just have to figure out how to monetize it in a disrupting world.”

The organizational changes, which will go into effect immediately, were designed with astonishing speed; Mr. Iger returned to the company only in late November.

Mr. Iger also disclosed quarterly profit and revenue that exceeded Wall Street’s expectations. Losses in Disney’s streaming division abated by $400 million compared with the previous quarter; investors had been braced for half as much. Despite a weakening economy, Disney’s domestic theme parks delivered a fat $2.1 billion in operating profit, an increase of 36 percent from a year earlier.

In late November, the Disney board fired Bob Chapek as chief executive and reinstated Mr. Iger, who ran the company from late 2005 to early 2020. The leadership change was made, in part, in response to threats from activist investors like Nelson Peltz, who is fighting for a board seat for himself or his son. Mr. Peltz has attacked Disney as “a company in crisis,” with challenges that are “primarily self-inflicted.”

Mr. Peltz has said he needs a board seat to help Disney revamp its streaming business, refocus on profit growth, cut costs, reinstate its dividend (suspended during the early part of the coronavirus pandemic, when much of Disney was closed) and do a much better job at succession planning. Mr. Peltz’s Trian Partners has amassed roughly $1 billion in Disney stock.

Mr. Iger said on Wednesday that Disney’s board was on track to restore the dividend by the end of the year.

“We are pleased that Disney is listening,” a representative for Mr. Peltz said in a statement.

Disney shares rose 5 percent in after-hours trading. After a sharp decline in 2022, the price has increased 26 percent this year.

Underscoring the importance of streaming to Disney’s future, operating profit from traditional television (the ABC broadcast network and 15 cable channels, led by ESPN) totaled $1.3 billion in the quarter, a 16 percent decrease from a year earlier. Revenue fell 5 percent, to $7.3 billion. Disney attributed the declines to lower advertising revenue, reflecting a drop-off in viewership, especially overseas.

Disney’s cable portfolio has held up better than those owned by some rival companies, but people have been cutting the cable cord at an alarming pace. Total hookups in the United States declined by a record 6.2 percent from October to December.

A decade ago, ESPN had more than 90 million subscribers. The number is now closer to 75 million. Disney has been able to maintain ESPN’s profitability by raising prices. For every subscriber, ESPN collects a monthly fee of more than $8 from cable providers, by far the highest for any channel. But that era is ending: Analysts say revenue from subscriber fees will decline in 2023 for the first time.

Mr. Iger said ESPN hoped to renew its expiring contract with the National Basketball Association, but added that the channel would have to pare back on other sports rights to maintain profitability. “We’re simply going to have to get more selective,” he said.

After a period when they pushed companies like Disney to chase streaming subscribers at any cost, investors have shifted to a new mind-set: Show us the profits. Disney has repeatedly said its flagship Disney+ service will be profitable by October 2024 — and did so again on Wednesday — but Wall Street has been skeptical. Losses in Disney’s streaming division totaled $1.1 billion in the quarter that ended in late December.

Disney had 234.7 million subscriptions across Disney+, Hulu and ESPN+ in the quarter, down from 235.7 million in early October. (Netflix has roughly 231 million subscribers worldwide after adding 7.7 million in the fourth quarter, well beyond its forecast of about 4.5 million.)

Disney+ lost about 2.4 million subscribers worldwide, for a new total of 161.8 million. All the decline came from a low-priced version of Disney+ in India. (Last year, Disney lost a bid to renew the expensive rights to Indian Premier League cricket matches.) Hulu, which does not operate overseas, recorded a 2 percent increase in subscribers. ESPN+ also added to its count by 2 percent.

“It’s obvious to us that we can’t get to profitability and turn this into a growth business without growing subs,” Mr. Iger said of Disney+. But the company “might have gotten a bit too aggressive” in marketing the service around the world, he added.

Disney will also focus more intently on family and children’s entertainment and pull back on generic general-audience programming. Mr. Iger said new “Toy Story,” “Zootopia” and “Frozen” sequels were in the pipeline, for instance.

Disney’s streaming division generated $5.3 billion in revenue, a 13 percent increase from a year earlier. On Dec. 8, Disney began charging $11 for a monthly subscription to the ad-free version of Disney+, up from $8, a 38 percent increase. The company also introduced an ad-supported option at $8.

In the restructuring, Mr. Iger gave oversight of streaming to a pair of lieutenants: Alan Bergman, previously Disney’s top movie executive, and Dana Walden, the company’s entertainment and news television chief. They will run a division called Disney Entertainment. Each will now be viewed outside the company as a potential successor to Mr. Iger, whose contract expires in December 2024.

Operating profit at Disney Parks, Experiences and Products totaled $3 billion, a 25 percent increase from a year earlier. Revenue in the parks and consumer products division climbed 21 percent, to $8.7 billion. The jump in profitability reflected growth in guest spending at Walt Disney World, in particular for line-shortening passes; better results at Disney Cruise Line; and higher returns from parks in France and Japan.

In total, Disney generated $23.5 billion in revenue in the quarter, an 8 percent increase from a year earlier. Analysts had expected slightly less. Excluding items affecting comparisons, per-share profit for the most recent quarter was 99 cents, a 7 percent decrease from a year earlier. Analysts had expected 79 cents.

Lauren Hirsch contributed reporting.

Sumber: www.nytimes.com