Bob Iger has announced a significant corporate restructuring and a cost-cutting plan of US$5.5 billion that will affect 7,000 jobs during his first quarterly update since returning as CEO of Disney.
During the last quarter of 2022, Disney’s results surpassed analyst expectations, with an 8% increase in revenue to $23.5 billion and a 11% increase in net income to $1.28 billion compared to the previous year. The company’s Parks, Experiences, and Products division boosted its performance, with a 21% increase in revenue to $8.7 billion and a 25% increase in operating profit to $3 billion. However, the media and entertainment division suffered a loss of $10 million and only a 1% increase in revenue to $14.8 billion, primarily due to losses from its streaming services Disney+, Hulu, and ESPN+. The streaming losses were smaller than the previous quarter, but significantly higher than the previous year. Disney attributes the losses to higher programming and production costs and increased technology costs for Disney+, as well as a decrease in advertising revenue for Hulu.
Despite a decline in advertising revenue by 8.5% to $897 million, Disney+’s chief financial officer, Christine McCarthy, expressed pleasure with the initial response to the introduction of ads in December and stated that the ad tier is not expected to have a significant financial impact until later in the year. However, Disney+ saw a decline in subscribers for the first time since its launch, with 161.8 million subscribers as of December 31, a decrease of 2.4 million from the previous quarter. During its third annual Tech & Data Showcase, Disney demonstrated updates to its in-house ad tech capabilities, including expanding Hulu’s ad server to Disney+. The price hikes across Disney’s streaming services helped increase subscription revenue by 17.8% to $4.2 billion.
Reorganization and Cost-Cutting Iger’s reorganization of the company, which followed the removal of his predecessor Bob Chapek, aims to address the losses from Disney’s streaming services.
Iger stated that the restructuring will “sustain growth and profitability” for the streaming businesses, prepare the company for future disruptions and economic challenges, and provide value for shareholders. The reorganization merges Disney’s production and distribution entities into one division called Disney Entertainment, which will also house most of its media channels and streaming assets.
ESPN has become its own separate division, while Parks, Experiences, and Products remains the third division. Iger explained that the new structure empowers creative leaders by making them accountable for their content’s financial performance, restoring the connection that was lost in the former structure. He also dismissed any speculation about a potential sale of ESPN, stating that the brand and programming of ESPN are healthy and the goal is to monetize it in the ever-changing world.
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The simplified structure is part of Disney’s plans to cut $5.5 billion in costs, including a reduction of $3 billion from content, excluding sports. Disney will eliminate 7,000 jobs, which is approximately 3% of its 220,000 employees as of October 1. Disney’s stock rose by approximately 5.7% in after-hours trading amidst the company’s ongoing proxy fight with activist investor Nelson Peltz and Trian Management.