Disney Now Lives By the Sub, Dies By the Sub

Bob Chapek
Photo by Gerardo Mora/Getty Images
Matthew Belloni
November 11, 2021

Well, now we know why Disney scheduled a big promotional stunt two days after its fourth quarter earnings reveal: C.E.O. Bob Chapek knew the Disney+ subscriber numbers would stink like Donald Duck’s diaper—he telegraphed as much in September—and with all those annual subscriptions up for renewal, tomorrow’s “Disney+ Day” was born. I trust you’ll be dressed appropriately and celebrating your toddler’s favorite Moana delivery app with the fanfare Chapek expects, paying no attention to the Disney stock slide of 7.4 percent since yesterday, down 20 percent from a March peak. Its market cap is now at $294.6 billion, about the same as Netflix.   

For better and worse, that’s the new reality for Disney’s shares, which thrived during a pandemic that crippled its parks and movie businesses because investors were convinced that it was becoming a tech company. Disney stock is still trading at a crazy-high multiple, all because that’s how Netflix trades, thanks to strong growth in subscribers. Problem is, that narrative requires that Disney+ actually keeps growing at a healthy clip, which, with just 2.1 million new subs this quarter, well below some analyst estimates of 9 million, it most definitely is not. Never mind that the company’s other divisions all rebounded well from the pandemic comps of a year ago. Even the most Disney-drunk analysts cut their price targets, and a Marketwatch headline declared yesterday “the most disappointing earnings report in 10 years.” Live by the sub, die by the sub.     

Disney isn’t alone in this predicament, of course. Streaming is the digital horse to which every entertainment company has hitched its wagon, and it’s far from clear whether the wagon train will eventually roll off a cliff. That said, it’s an especially strange era for Disney, which has always been the envy of Hollywood because it is not solely dependent on one business, or even a small number of businesses. Walt’s famous flywheel enables not just synergies among interlocking units but cushions when, say, the movie division releases a few expensive turds, or a recession kneecaps parks and cruises.

But no more: It’s streaming or bust, ignore all the other stuff, flywheel be damned. And that’s creating some potentially dangerous incentives for Chapek. As the other Bob, he’s never going to win a statesman of the year contest, nor is he known as an M&A specialist, or a creative visionary (or even particularly friendly with creatively-talented people, say those who know him). He’s a manager, first in home video, then at the studio, then in consumer products, then parks, and finally as lead Mouseketeer. The stock price is his primary job, as it is for all C.E.O.s, but especially for those without that other stuff. If subs don’t rebound and the stock continues this slide, he’s going to start throwing everything but the Seven Dwarfs’ kitchen sink at Disney+.

Yes, I know, Chapek already is heavily prioritizing D+ at the expense of everything else. But the shift could become even more dramatic very soon. For instance, Chapek hasn’t committed to an exclusive theatrical window for Disney films beyond the end of next month. Marvel’s three likely blockbusters set for next year—sequels to Doctor Strange, Thor, and Black Panther—must look mighty attractive for “premiere access” day-and-date releases, or even direct-to-D+. Pixar’s Turning Red seems all but a shoo-in for D+ only, given Soul and Luca were released that way. But what about Lightyear, the big Toy Story prequel with Chris Evans? People at Pixar are hopeful that one will get a theatrical window, given its box office prospects. Is Chapek? To investors yesterday, he preached only “flexibility.”     

That may be the right strategy for short-term sub gains, and analysts would likely cheer, but it would come at the expense of potentially billions of dollars in box office revenue and the long-term franchise-building associated with theatrical releases. (Not to mention all the talent and executive headaches that came with 2020’s day-and-date experiments.) Still, since Netflix became the darling of entertainment stocks, the market has shown that it will reward only one measure of success. It would be silly to think Chapek won’t follow the market as aggressively as possible.