Disney, Pirates, and Treasure Maps
Imagine you’re the captain of a pirate ship. You’ve even got a treasure map and a crew to help you find it. You’re making your way and stopping every now and then to resupply and fix the ship.
The crew loves the stops. Why? Because they get to see people that don’t live on the stinking ship! They also get to hear how confident the islanders are in your plan. “You’re headed in the right direction” they tell the crew. And you puff your chest out when you hear “there are other captains taking their crews that way too, but you look stronger than them – I think you’ll find the treasure first”.
But then you hit a string of bad luck. Scurvy or a bad storm or something. I don’t know… pirate stuff?! Anyway, your bad luck causes the island stops to take on a different tone. Rather than singing your praises – raising the confidence of the crew – the islanders turn sour. “That storm seems to have dinged you up pretty good”, “that other captain was smarter”, and “are you sure you trust your captain’s map?”.
Before long, the crew doesn’t laugh quite as hard at your jokes. They don’t grin back at you, they grimace. Work on the ship slows down, and some days it feels like you’re hardly moving. Then one day, a crewmember launches an impromptu meeting in broad daylight.
Is this a mutiny?!
No… but by the time you get there, the ring-leader has a bunch of people gathered around, nodding their heads in agreement. “We should be following this map instead”, you hear the ring-leader say. But this new map says the treasure is in a completely different spot.
You’re losing the crew, but you’re still in charge…for now. What do you do?
Bob, Meet Nelson
Disney CEO Bob Iger is the real-life version of the pirate captain, and right now the ring-leader with the new map is activist investor Nelson Peltz. Why does he care which map gets used? Because Peltz’ hedge fund owns a bunch of Disney stock ($2.5B worth), and he wants them to find treasure as soon as humanly possible, raising the stock price in the process.
He first raised concerns about Disney’s leadership and direction back in November 2022, when Bob Chapek was still CEO. Ultimately, Peltz backed off when Disney:
Fired Bob Chapek and brought back former CEO Bob Iger
Announced some restructuring (including 7K layoffs…)
Reintroduced an annual dividend for shareholders
They did all of that by February 2023, a short 3 months after the dust storm got kicked off. So Peltz calmed down and said the fight was over.
So if you’re asking yourself why Peltz is back now, you’re not alone. And there are two parts to the answer. First, Bob Iger hasn’t found any treasure. Here’s the stock price – the peak here is from February, when the first round with Peltz was nearly over.
That’s a 26% drop since the first round of the fight…
The second part, and the one that requires some explaining, is that Peltz thinks he has a better treasure map than Iger.
The Peltz Plan
For lack of new updates, I’ll share what Peltz was sharing publicly back in Feb 2023 (note: I’m paraphrasing… pirates typically don’t use numbered lists):
Disney should be more efficient and conservative in its streaming content spend.
Disney relies too much on profits from the parks business to subsidize other struggling units.
Disney needs to take succession seriously. Bad leadership and turnover in the CEO role can tank the business.
To help accomplish the above, Peltz also specified last week that he now wants two board seats – one for himself and one that he picks. Having two spots on the Disney board will give him a front-row seat and a chance to steer as much as possible in the direction he thinks has treasure.
Evaluating the plan
I wrote about exploding content costs in July, so I know they’re up 86.5% for the industry in the last 5 years… but as I said in that earlier post:
Streamers probably see spending more on content as a way of having a better product. But over time, that spending becomes unsustainable. I would argue that it’s approaching that level now. Streamers like Disney that have revenue from other business units can afford to spend like this. But most can’t, and they’re speeding towards a wall in an expensively written, directed, and produced game of chicken.
We (Peltz and I) are zeroing-in on the same dynamic – a cutthroat, cash-strapped streaming business being subsidized by parks – but I think it’s worth the investment. Because Disney has other revenue sources, they can out-last their competitors. When those competitors hit the wall, Disney stands a pretty strong chance of capturing that demand and growing its viewership. It just needs to keep up the fight.
As for the succession planning, I think Peltz is over-reacting, but he’s not completely wrong. In July 2023, Iger’s contract was extended by two years, now ending in 2026. To explain the extension, he pointed out that he needs to make serious changes, and that those changes will take time. I wrote before about why corporate change management is so hard, so I tend to agree that serious changes take time… but he left the CEO job in Feb 2020 and came back in Nov 2022. Four years to undo mistakes that your predecessor (who you handpicked) made in your three-year absence? The truth is that some of the mistakes you’re undoing are your own at that point, and you seem to be kicking the succession can down the road again…
Wrapping Up
Disney hasn’t responded yet, and rumors are swirling that they were surprised by the second round of the fight… Also, there’s a 1-month board nomination window starting December 5th, so we should know more as we approach that date.
But if it was up to me, I would still want Disney to follow Iger’s map. He’s recently doubled Disney’s planned investment in parks ($60B over the next 10 years), so he’s not neglecting the business unit that is metaphorically ‘putting the team on its back’. And Iger also has better ties to the entertainment industry vets that can 1/ change the calculus in the streaming wars and 2/ get Disney animation back on track (after a reported string of less-than-ideal performance).
Bonus Bullets
Quote of the Week:
We believe Artificial Intelligence is our alchemy, our Philosopher’s Stone – we are literally making sand think. (Source)
— Marc Andreessen, Co-Founder of Netscape, well-known Venture Capitalist
(this from a very wild ‘manifesto’ he published two days ago… )
Quick News Reactions:
Oh Geez: Comcast named their new cable internet service “10G”, and people are pissed. Industry groups and marketing experts are right to call this misleading, because it implies their internet will be twice as fast as 5G, which it won’t be.
Oh Snap: Snapchat’s stock jumped 11% this week after it was reported that they are on track to have 6.5% higher usage than expected… in the year 2024. These are forecasts people! Calm down!
A Tale of Two (or Three) Business Units: Linkedin (owned by Microsoft) cut 700 employees, most of whom were engineers apparently. This is on top of the big 10K cut in January. Layoffs are never fun, but the reason this stuck out is that Microsoft could not possibly have more momentum around AI (OpenAI, ChatGPT, hello!?) and Gaming (Activision deal approved) right now. While that’s happening, LinkedIn is apparently belt-tightening… tough.
EUCBDC: Those letters mean something, I promise. The EU announced this week that they are two years away from a central bank digital currency (CBDC). This is a big deal, and for me it’s interesting to see the EU leading not just on regulation (Digital Markets Act, GDPR) but also on forward-looking tech.
Netflix prices: Are going up again. And they will keep going up… it’s the content costs yall! Go read my older post — the content costs section especially — if you didn’t already.
Tech Jobs Update:
Here are a few things I’m paying attention to this week:
Big Tech Job Posts: LinkedIn has 14,947 (+39.5% WoW) US-based jobs for a group of 20 large firms (the ones I typically write about — Google, Apple, Netflix, etc.). two 40% jumps in consecutive weeks…
Graph: Layoffs since covid (Source: Layoffs.FYI). Note that this is showing in-progress Q4 numbers. Not out of the woods yet.
