Disney's Next $180 Billion Won't Come Easy

(Bloomberg Opinion) -- The streaming wars. The weaker box-office lineup. The economic trepidation. The coronavirus.

All of that is taking Walt Disney Co. on a roller-coaster ride this year, and it makes sense that Bob Iger would rather watch from the safety of the ground than be strapped in the front seat. He’s earned it.

Iger, who has been CEO of Disney since 2005, startled investors on Tuesday with his abrupt decision to step down, a move that wasn’t expected to happen until the end of next year. As soon as the subject line of the email from Disney appeared in my inbox at 4:06 pm on Tuesday, a cascade of negative thoughts raced through my mind: Is Iger sick? Is another Hollywood #MeToo moment about to unfold? Was the company at risk of losing yet another successor candidate whose patience was tested by Iger’s continuously postponed retirement? The email went on to say that Iger is staying on only as chairman for his remaining 22 months, while Bob Chapek has stepped into the more hands-on and culpable role of CEO. Oh, to be a fly on the wall during those boardroom discussions, the only people who know why exactly the succession plans were sped up.

But as the shock from the announcement subsides, and as financial markets remain in tumult, Iger’s unspoken logic behind the move — or at least part of it — makes more sense. Disney has a difficult year ahead, and the stock-market rout adds to the pressure. Why should Iger’s legacy be marked by such a tense final chapter? “It’s the right time to transition to a new CEO,” he said Tuesday, and maybe it really was. Iger signaled that in his remaining time at Disney, he’ll have a more amorphous role that involves working on the creative side to make sure he leaves it in top shape. But strategically, he’s done what he set out to, assembling what he thinks are the right collection of assets, and handing them off to Chapek.

Iger, though himself a controversial CEO pick at the time, ended up reigniting Disney’s imagination and sense of magic, restoring a 97-year-old company to its heyday — better, even — accomplishing it all with his reputation for integrity intact. Disney’s market value increased by some $180 billion during his tenure, beating peers and the broader market. His acquisitions of Pixar, Marvel and Lucasfilm were a trifecta of genius, bringing more beloved characters into the Disney universe, elevating the company’s movie-making business, expanding its fan base and setting it up for later success in the streaming-TV era. Iger also expanded Disney’s theme parks and amplified their experience of being transported into a world of childlike wonderment through years of careful investment, capped by the 2016 opening of Shanghai Disney Resort and last year’s opening of the “Star Wars”-themed Galaxy’s Edge. Also last year, Disney delivered the highest-grossing film of all time, Marvel’s “Avengers: Endgame.”

But just as I wrote then, as “Endgame” headed for a record $2.8 billion in global ticket sales and after his string of successes, Iger would have a hard time outdoing himself. Disney’s scheduled box-office releases for 2020 have much less of a wow factor than last year’s, with “Avatar 2” pushed back to December 2021 and the next “Star Wars” film not coming until 2022.

Then there’s the coronavirus. Disney, with its parks, cruise ships, hotels and movie business, will undoubtedly feel some painful effects of the potential pandemic. The Shanghai park, which Iger saw as the capstone project of his career, has already been closed for a month because of the flu-like virus. Earlier on Tuesday, the Centers for Disease Control and Prevention warned Americans to prepare for possible closings of schools, sports arenas and other germ factories, calling it a matter of when, not if, the outbreak spreads in the country.

Chapek, the new CEO, is a longtime Disney executive who has been running the company’s parks and resorts since 2015, and before that the consumer-products and home-video businesses. In his first Bloomberg Television appearance as Disney chief, he said he wasn’t ready to talk about how the coronavirus might affect Disney, but assured investors that “we’ll come back better and stronger than ever.” “Back” implies it’s going somewhere. And down is where the stock went Wednesday, bringing this year’s losses to 12%.

As it is, the company’s investments in Disney+, its new streaming-TV service, are weighing on earnings. The launch of Disney+ went better than anyone expected, and it had 26.5 million subscribers as of December. But now comes the hard part: Comcast Corp.’s NBCUniversal will introduce its Peacock app in April, followed by AT&T Inc.’s spruced-up HBO Max in May. Apple TV+ could also pose a threat should Tim Cook decide to plow more money into the service. The early signups for Disney+ were easy wins. Keeping them will be harder and expensive, and those efforts will continue to disrupt the rest of the Disney empire.

Iger could see his retirement date “out of the corner of my eye,” he wrote in a memoir, titled “The Ride of a Lifetime,” published in September. “It surfaces at unexpected times. It’s not enough to distract me, but it is enough to remind me that this ride is coming to an end.”

In fact, the ride is about to get pretty wild. Maybe he saw that coming, too.

To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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