Los Angeles/New York The US media and entertainment group Walt Disney wants to reposition itself and cut around 7,000 jobs. That corresponds to almost four percent of the workforce. The company announced the layoffs Wednesday as part of a wide-ranging restructuring expected to result in $5.5 billion in cost savings. With its global streaming business, Walt Disney faces fierce competition from rivals such as Netflix and Amazon, and is making losses there.
“It’s time for another transformation,” said Disney CEO Bob Iger. He announced a restructuring into three segments: an entertainment division called Disney Entertainment, which includes film, television and streaming, a sports-focused unit around the ESPN channel, and the Disney Parks division, i.e. experiences and products.
The restructuring will streamline processes, make the business more efficient and reduce costs, it said. Most recently, Disney laid off 32,000 employees during the corona pandemic, mainly in its theme parks.
According to Iger, decisions should now be placed back in the hands of creative minds, who then have to decide which films and series are produced and how they are distributed and marketed.
In addition, the Disney boss announced that the entertainment group intends to pay out a “moderate” dividend again from the end of 2023. The plans met with approval on Wall Street. Disney shares are up more than 6 percent in after-hours trading.
Disney+: Subscriber decline for the first time
With the job cuts that have now been announced, the group, which is celebrating its 100th birthday this year, is following the example of other media companies. Several competitors had also announced job cuts in response to slowing subscriber growth and increasing competition for streaming viewers.
On Wednesday, the group reported a decline in the number of subscribers for its Disney+ streaming division for the first time in a quarter. At the end of the year, it had 161.8 million users worldwide, a drop of one percent compared to the third quarter of 2022. Disney missed analysts’ expectations. The background was, among other things, the loss of cricket sports rights in India.
The decline throws Disney back in the battle for the streaming crown. Just a few weeks ago, competitor Netflix reported surprisingly strong customer growth. The number of Netflix users increased by 7.6 million to 231 million in the fourth quarter. Analysts had expected only about half of the new users.
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The Disney+ division lost more than $1 billion in the final quarter. Since its inception in 2019, it has racked up a loss of nine billion dollars. In 2024, the division should operate profitably and have 215 to 245 million subscribers. This target was already reduced in August.
Now the company wants to save $2.5 billion in selling, operating and general administration costs, with another $3 billion to bring layoffs and cuts in non-sports content.
Overall, Disney’s net profit increased by eleven percent to just under $1.28 billion in the past quarter. Sales climbed eight percent to $23.51 billion, higher than expected.
Criticism from investors to Disney boss Iger
The restructuring marks a new chapter under CEO Iger, whose first term in office began in 2005. He bolstered Disney with a number of entertainment brands, acquiring Pixar Animation Studios, Marvel Entertainment and Lucasfilm. Years later, he repositioned the company to capitalize on streaming as well: He bought 21st Century Fox’s film and television operations in 2019 and launched Disney+.
In 2020, Iger stepped down as CEO but came out of retirement in November 2022, replacing acting CEO Bob Chapek. The sudden change in management had led to some turbulence in the group.
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The pressure on Iger had recently increased. The activist investor Nelson Peltz and his financial house Trian Fund Management launched a campaign in January to be appointed to the group’s board of directors by the shareholders. Peltz accused the management of the recent share price declines. He criticized the “value destruction” at the company due to Disney’s failure to properly plan for CEO succession.
In addition, Peltz criticized “weak corporate governance” under which management approved “completely excessive” salaries, as reported by the “Wall Street Journal”.
Critical investors like Peltz fear that Disney could face problems in the current challenging economic environment, for example due to the debt burden on the balance sheet in the wake of the 21st Century Fox takeover.
“Disney could have offered a very successful and profitable streaming service from day one without having to buy the Fox assets,” said Doug Creutz, an analyst at Cowen & Co. But then the company would have had hit content like “The Simpsons” have to do without. “The strategic idea was that if Disney+ grew fast enough, there would be two to three streaming services left and Disney+ would be one of them.”
Disney observers expect a decision on the complete takeover of the Hulu streaming service and a possible spin-off of the ESPN sports network in 2023. The latter would be easier to implement in the new structure.
With material from Reuters.
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First publication: 02/08/2023, 11:37 p.m. (last updated: 02/09/2023, 00:57 a.m.).