Disney’s Tragic Kingdom

This is an audio transcript of the Unhedged podcast episode: ‘Disney’s Tragic Kingdom’

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Ethan Wu
Things are getting weird at Disney. The House of Mouse is getting into the betting business. They’ve gotten their break-in-case-of-emergency CEO back out of retirement. And in general, it’s been a tough couple of years for Disney. The stock has been cut in half since 2021. Today on the show we ask, how is Mickey Mouse doing? Is he all right? This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I am reporter Ethan Wu joined today by deputy corporate finance editor Ortenca Aliaj, whose experience with Disney began when the Berlin Wall fell. Is that right?

Ortenca Aliaj
(Laughter) Sort of.

Ethan Wu
Sort of?

Ortenca Aliaj
When communism ended in Albania. Yes. My parents bought me a book called Hirushja when I was about three, which is the Albanian name for Cinderella. And I was obsessed with this book, and learned it off by heart. So that was my first experience with Disney.

Ethan Wu
You recited it at school, right, to kids that did not wanna hear it. (Laughter)

Ortenca Aliaj
(Laughter) Yes, I read it so much. (Ethan laughs)

Ethan Wu
You sound very guilty to admit that.

Ortenca Aliaj
I’m cooler now. (Laughter)

Ethan Wu
(Laughter) Ortenca is both cooler (Ortenca laughs) and Disney is a great capitalist icon with international renown. However, it’s not been the best couple of years at Disney. Fast forward from your childhood to 2023 and this unbridled symbol of capitalism, they’re getting into the betting business, into the gambling business. ESPN, which is owned by Disney, has done this deal with Penn Entertainment, which is a casino chain, to have exposure to the sports betting industry. It’s really fast-growing, but there’s kind of a whiff of desperation to this deal too. And there’s real reputational risk for Disney. I mean, this is something Iger didn’t want to do, right? 

Ortenca Aliaj
Yeah. So this is a very unusual deal for Disney, and particularly for Bob Iger, the current CEO who has made his comeback, basically looking to solve the problems that Disney has. And one of the ways that he’s trying to do this is to find ways to generate cash, hence this unusual deal.

Ethan Wu
And it’s not like Disney has any shortage of problems, which, you know, I think goes some ways to explaining this arguably slightly desperate move. And so we’ve sort of broken those problems down into the decline of linear TV, Disney’s huge debt pile, the streaming wars and lack of creativity, a lack of that special something. Let’s start with linear TV, which we should say for all the zoomers out there, what it is, probably.

Ortenca Aliaj
Yes, for all the other people listening.

Ethan Wu
I don’t really watch linear TV, to be honest with you.

Ortenca Aliaj
Me neither. But linear TV is where you basically paid a monthly fee for TV and you had to watch it from start to finish and you had to put up with ads. This was a big cash generator for Disney because you’re effectively making money whether someone watches it or not. So what’s happened is people don’t watch cable anymore and don’t want cable. And it has pushed Disney into the streaming wars. And the streaming wars are dominated by the likes of Netflix and Amazon and Apple. And particularly, those two last companies have a ton of cash they can burn. Disney doesn’t. And so Bob Iger has to find a way to make streaming profitable whilst competing with these huge behemoths.

Ethan Wu
Yeah. Yeah. And we’ll get more into streaming in a second. But I want to make like a kind of a big-picture point about linear TV, which is like, it’s kind of insane if you think about it. Like from the vantage point of 2023, in the sense that what every American household was doing was paying like a hundred bucks a month for a bundle of channels where you didn’t watch most of them. And even on the ones you did watch you had to watch ads, right? It’s not a great deal from a consumer perspective. Today, the offerings are like you buy à la carte what you feel like buying. A lot of them you don’t have to watch ads. But, you know, linear TV was in some ways like a big transfer of wealth from consumers to businesses. And every household was on board with it. And I think people eventually realise it’s not such a great deal when other stuff’s available on the internet.

Ortenca Aliaj
Exactly. People have enough to be moved to streaming and that is going to be the growth area for Disney. They’re still going to get money from the linear business, but this is really where the company is focused and where it’s put the most cash into. And of course this was happening when Iger was first in power from 2005. He wanted to make this big push into streaming. Then when he handpicked his successor, Bob Chapek, who was only on the job for, I think we said 33 months, Bob Chapek also went very big on streaming. So they’ve kind of, to borrow a phrase, bet the farm on this.

Ethan Wu
Yeah.

Ortenca Aliaj
They need to make streaming a success.

Ethan Wu
And like you said, with streaming, every major company is in this market in some way or another, and it may just be a smaller pie than TV was, a smaller pie with really intense competition. And that competition may not abate for, I mean, years and years.

Ortenca Aliaj
Right.

Ethan Wu
Like, eventually some, you know, I don’t wanna name any particular streaming services. (Coughs) Peacock. (Laughter) But not everything is going to survive . . . 

Ortenca Aliaj
No.

Ethan Wu
 . . . in this market. I think it was very clear to anyone watching.

Ortenca Aliaj
No. There’s gonna be a lot of consolidation. And look, Disney has to make this successful because they have this almost $50bn debt pile that has come from largely an acquisition that was made in Iger’s time of 21st Century Fox, which included another streaming service, Hulu.

Ethan Wu
Yeah, so that’s another one of the big problems that, you know, was leftover from Iger’s previous tenure was that this Fox deal. And maybe you can explain this, it feels kind of old news, but it’s really relevant to understanding some of the burdens that Disney faces today.

Ortenca Aliaj
Yeah. So the Fox acquisition was a huge deal for Disney because it basically got a hold of Fox’s movie and television productions, its FX cable network, the National Geographic properties, Hulu, as I mentioned. The price was just over $70bn. I think looking back on it, a lot of people in the market — shareholders, investors — think that Iger hugely overpaid for these assets.

Ethan Wu
Yeah.

Ortenca Aliaj
And they have lumbered Disney with this huge debt pile. So the question is how does he monetise these assets, particularly in a time where linear TV is declining and also where Disney’s movie business isn’t doing particularly well? And that’s another part of Disney’s problems that Iger has to deal with.

Ethan Wu
Yeah, yeah. So let’s get to that. So that’s linear TV, the streaming wars, the debt problem, but there’s one maybe slightly less tangible problem, which is just, it kind of feels like Disney’s lost the magic. They haven’t had as many commercial successes and I think people are getting a little bit sick of maybe some of their movie franchises. Do you think Disney’s kind of lost a step here with the creativity?

Ortenca Aliaj
Yeah, I think a lot of consumers feel that they are getting the same thing over and over again. Disney will hit on a success like Marvel and they’ll have a big film and then they’ll decide, let’s just do 10 more of this. And I don’t think people are really enjoying that anymore. I mean, you have the huge success of Barbie and Oppenheimer. People really want to see original movies, things that bring new ideas. And Disney hasn’t had that in a while. It’s just kept doing remakes. It had The Little Mermaid, which I think was a huge flop; this Pixar movie called Elemental, which hasn’t done particularly well. So it’s really struggling in the film cinema division.

Ethan Wu
And I mean, I think this leads to a discussion of, like, how we got here, right? Talk through kind of the drama of the last couple of years and how maybe that’s subtracted from Disney’s ability to focus.

Ortenca Aliaj
Yeah. This is the tale of the two Bobs, right?

Ethan Wu
Yeah.

Ortenca Aliaj
So Bob Iger left and installed Bob Chapek in 2020. He sort of handpicked him as a successor.

Ethan Wu
He was a parks guy.

Ortenca Aliaj
He was a parks guy. He’s got a different personality to Iger. Iger’s this schmoozer, Chapek is not really like that and probably doesn’t have the same tactfulness that Iger does. So he takes the job over and he takes it over in February 2020, which is obviously just before we have these, you know, government-mandated lockdowns, companies are scrambling to shore up the balance sheets, make sure that they’re gonna be OK through the pandemic. So it’s sort of an unfortunate time for him to take over. He then makes certain mishaps. He burns all of this cash on streaming and he has this very public spat with Scarlett Johansson, one of the stars of the Marvel show.

Ethan Wu
“Jo-hansen” to you Americans.

Ortenca Aliaj
Yes. (Ethan laughs) And something that Iger would never have done, right, because he was very good and tactful at dealing with big egos. So it seems though like he’s doing well. And it seems like the board is happy with Chapek. The share price actually in 2021 is at sky-high.

Ethan Wu
Yeah. Peaked.

Ortenca Aliaj
It’s at its peak. And then all of a sudden he’s ousted and Iger is brought back in. And I think it’s important to remember that whilst there were problems that perhaps Chapek created, he wasn’t there long enough to break things.

Ethan Wu
Yeah.

Ortenca Aliaj
A lot of these issues are coming from Iger’s legacy. And is Iger the man to fix it? That’s the question. You know, can he fix the problems that he made?

Ethan Wu
Yeah.

Ortenca Aliaj
But this is not necessarily a disaster borne by Chapek.

Ethan Wu
It’s a great point. You know, in some ways, because all of these high-spectacle problems happened under Chapek, it’s maybe obscured the extent to which Iger is sort of, you know, he’s just been around so long that the problems began with him and they’re going to have to end with them. Now, there’s a question about picking a successor.

Ortenca Aliaj
Yes.

Ethan Wu
That’s just not clear. He says it’s a priority for him, but we’ll have to see.

Ortenca Aliaj
Well, not just a successor. He also has to find a chief financial officer. So now Disney, whilst it’s having all these issues, is on the hunt for a CFO and the CEO. That’s not a great place to be in. But I’m gonna use a phrase that one of my contacts use, which is that Bob Iger will leave Disney when he dies. (Ethan laughs) I don’t think anyone thinks he has any intention to leave that company, so maybe he’ll be like the Marvel franchise, is he’ll just be coming back again and again . . . 

Ethan Wu
Oh no! (Laughter)

Ortenca Aliaj
With the same ideas.

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Ethan Wu
I have absolutely nothing to add to that. (Ortenca laughs) We’ll be back in a moment with Long/Short.

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Welcome back. This is Long/Short, that part of the show where we go long a thing we love, short a thing we hate. (Sighs) I am sure our ability to use any kind of creative or witty or foreign phrase on this show, it never works. Ortenca, last time we had you on with a friend of the show, Rob Armstrong. And Rob said that Carl Icahn, Wall Street legend, was hoisted by his own petard. One very thoughtful reader wrote in to say the correct phrase is actually “hoist with his own petard”, hoist being the proper past tense of hoise, which is an Old English word first seen in Shakespeare’s Hamlet. So thanks to Rupert in Glasgow for that one. I say, let’s just not use any phrases. Let’s be as uncreative as possible. I’m short our ability to be creative.

Ortenca Aliaj
I’m glad no one picked up on my schadenfreude, or whatever, how you pronounce that.

Ethan Wu
(Laughter) Are you long something, Ortenca?

Ortenca Aliaj
I am. There’s only one option this week and I am long the Lionesses.

Ethan Wu
OK.

Ortenca Aliaj
OK. So this is the UK women’s football team — shame on you if you didn’t know that — who have reached the World Cup final by defeating Australia on their home turf and we will be playing Spain on Sunday. So football might actually be coming home.

Ethan Wu
OK. How are you feeling about that?

Ortenca Aliaj
Nervous.

Ethan Wu
Nervous?

Ortenca Aliaj
But very excited.

Ethan Wu
Yeah.

Ortenca Aliaj
I also have to do a special shout out to Sam Kerr, I believe her name is, who scored, she’s an Australian player but scored one of the most fantastic goals I think I’ve ever seen.

Ethan Wu
(Laughter) All right. We’ll have to get Sam Kerr on the podcast to talk about her goal.

Ortenca Aliaj
If I pronounced her name right. (Laughter)

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Ethan Wu
Yes, we don’t pronounce anything right. So I think if we have a disclaimer that nothing will be pronounced right, then no one will be hurt, you know?

Ortenca Aliaj
Yes.

Ethan Wu
All right. Thanks for being here, Ortenca. We’ll have you back soon.

Ortenca Aliaj
Thanks for having me.

Ethan Wu
And listeners will be back in your feed on Tuesday with another episode of the Unhedged podcast. Catch you then. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie and JessTruglia. FT Premium subscribers can get the Unhedged newsletter for free. A 90-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer. I’m Ethan Wu. Thanks for listening.

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