It’s been a day since Bob Iger took over again at Disney and he’s made his first change; he released Kareem Daniel, the head of Disney's Media and Entertainment Distribution (DMED) division. The appointment of Daniel by Bob Chapek was an unpopular one and his release as the first move made by Iger may be an indication of the specific direction he has from the Board and a sign of the changes to come.
First and foremost, let’s look at the organizational changes made by Chapek which led to the appointment of Daniel in the first place.
When Chapek first took over at Disney, there was a corporate reorganization to support the “Direct to Consumer” philosophy Chapek espoused. This meant that the company was divided into 2 divisions, the media division (DMED) which includes all of the studios and Disney+, and Parks, Experiences, and Products (DPEP) which includes the theme parks, cruise line, Disney Vacation Club (DVC), and retail consumer products, such as the former stores and shopdisney.com.
Since that change was made, which works well during a pandemic, has not been successful one the world begins to “open-up” again and will definitely not work during a recession. Why? There are 2 BIG reasons.
First, Disney has alienated movie theatre chains during the pandemic, had legal issues with Scarlett Johanssen over royalties, there was Lucasfilm internal conflicts, and general job dissatisfaction and sadness of many DMED employees who feel that their work should be a theatrical release and not a streaming service release (think Pixar), and the limitless financial and studio resources that DMED is drawing on to barely maintain Disney+ is a huge risk to profitability, especially if a pandemic hits and consumer spending falls off a cliff.
Secondly, the direct-to-consumer model will NEVER work for Disney, since the company is too large to maintain the necessary supply chain infrastructure and control of their merchandising to support it. The best example of this is the closing of retail stores, which severs the direct, in your face relationship between guest and Disney products, especially in markets where online shopping is not a viable option due to excessive shipping costs to get purchases delivered.
Prior to the pandemic, Disney was pricing itself out of the middle-class market. People were complaining about high costs and value for money, which has only worsened under the Chapek era when deals disappeared, Genie+ fell flat with consumers upset they now need to pay for “FastPass” service that was previously free, and park reservations frustrated most park guests. In contrast, Universal parks offered consumers tremendous value, popular new attractions opened, and a huge new theme park in Orlando opens in 2025 that Disney not only has no plan to deal with, won’t be able to come up with an alternative ready in time to compete with it.
So, where do I think Iger is heading (and the real reason why Chapek had to go immediately)? It’s simple.
Disney needs to make money and fast. They’ve been drifting under Chapek who was in over his head and it’s now starting to seriously affect the bottom line. Iger start with the studios which have been poorly managed through a strategy designed to reduce costs and maximize returns. The DMED division is hemorrhaging money and they need to find ways of generating revenue and minimizing costs.
Next will come Parks, Experiences, and Products. Since they’re making money (and can easily pivot to make more), DPEP changes are less urgently needed. So, for those expecting an immediate return of the Disney Dining Plan, Magical Express, and the end of Genie+ and the reservation system, you will likely be sadly disappointed. What you can hope for (and will likely see) is better maintenance, a speed-up on new attraction openings and re-evaluation of projects halted in the parks, with some getting the green light to proceed (think Play! Pavilion which is almost complete and shelved). DMED financial improvements will help to free up cash to finish projects that have stalled (especially at EPCOT), give them a marketing “weenie” for the parks, and help to increase capacity and interest in more guest visits.
Parts of the parks are a complete mess, and those areas need to complete before we see any new projects underway (with the exception of Splash Mountain which will probably start soon since the winter is the best time to take down the attraction).
Expect to see the EPCOT spine project accelerate to re-open that huge swath of park space closed for 3 years and counting, Tron Lightcycle Run in the Magic Kingdom to get an opening date, and similar projects nearing completion to speed up. You will not see new projects get announced until the backlog of open construction begins to wrap-up. Clearing the backlog will also help to maintain and improve park capacity before tackling any new projects that will inevitably reduce it.
For example, expect to see Animal Kingdom get some new life injected when they officially announce what’s replacing Dinoland USA in Animal Kingdom, which is a dead area of the park. We may see a slow start on Disneyland expansion, but since that will require substantial infrastructure investment with money they don’t have on hand, it’s likely not to be very ambitious until they have the money to fully fund it.
The priority will be Walt Disney World for investment in the short-term, since Disneyland doesn’t rely on vacationing guests, has no attendance issues, and existing projects will help to keep things fresh.
We’ll also likely see a return to a smaller, more targeted retail store footprint, especially in places where there is a Disney desert, such as the Canadian and Brazil, and UK markets, where they’ve lost the “synergies” the company relies on for vacation bookings. It will start with Disney “pop-up” stores in places where they want to test the waters again and expand from there. I also think that you’ll see Imagineering stay in California and expand the existing WDI footprint in Florida so that it pleases everyone.
It’s difficult to comprehend the scale of the brand damage Disney has suffered after just a few short years and the sheer scale of the work ahead for Bob Iger. That said, the Board is right in its belief that Iger is “uniquely situated” to handle the task ahead of him. It really is a critical situation where the company needs to pivot and succeed or face an uncertain, gloomy future.
