Two emails arrived this week that fit nicely together. First was a Disney tipster lamenting that three smart executives in its Streaming Services unit had resigned in the wake of chief technology officer Joe Inzerillo bailing for SiriusXM. Inzerillo was an architect of Disney+ and the company’s other streaming products, so the exits, which a Disney rep confirmed to me today, will sting a bit as the company faces extreme pressure to grow subscribers fast.
Second was the “three pillars” memo that C.E.O. Bob Chapek sent on Monday, outlining his priorities now that his predecessor, Bob Iger, is finally gone. The first two pillars were lifted from the media leader playbook. Everyone touts “storytelling excellence” (which, to Chapek, apparently means an additional meeting added to the calendars of creative executives, because, as everyone knows, more meetings is exactly what creatives love); and “innovation,” which allowed Chapek to use the word “metaverse” without explaining what that means to him or to Disney.
It’s the third pillar, “Relentless focus on our audience,” that has been generating a lot of chatter within the company and around town. “We must evolve with our audience, not work against them,” Chapek wrote. “And so we will put them at the center of every decision we make.” That’s Bob telling Pixar employees (and everyone else) to stop bitching about becoming the company’s direct-to-video unit, the latest example being Turning Red (March 10). He’s implicitly defending the Scarlett Johansson blowup, arguing that Marvel fans liked being able to pay to watch Black Widow at home, even if ScarJo made less money. And he’s justifying the company reorganization that put a non-content executive, Kareem Daniel, in charge of content distribution. The customer doesn’t care what experienced creative leaders like Peter Rice or Dana Walden think will work on ABC or Freeform or Hulu, so why should Disney?
That’s fine; everyone knows streaming is Disney’s priority now. But this strategy isn’t the focus because Chapek is particularly compassionate about the plight of the audience. It’s about establishing streaming as a new and viable business model, one that Wall Street endorses and that positions the company to thrive on digital platforms like it did in the cable TV ecosystem for the past few decades. Chapek knows that if he doesn’t improve those Disney+ numbers by this time next year, the stock will continue to languish and he won’t be C.E.O. after his contract expires in February 2023. That’s not very far away.
This “customer” justification always rings hollow to me. It’s tech speak, like something you’d hear from an Amazon or Uber exec to explain short-term loss-leader pricing to gain long-term market share. Of course the customer is king, that’s the whole point of a media business: serving audiences. The trick is to create a working business that serves all your constituencies: the customer, the company, and its employees. Audiences almost always want things from media companies that aren’t great for their businesses, and guess what, smart leaders serve both their financial interests and the whim of the crowd. Amazon didn’t grow so large because Jeff Bezos cared about customers; he knew that losing billions by underpricing competitors online and delivering products faster would ultimately lead to an insurmountable subscriber base that could be monetized like nothing in the history of retail.
Chapek himself certainly didn’t think about what the “audience” wanted when he was running Disney’s home video unit in the ‘90s. He leveraged the “vault” system, where he would remove titles from circulation—literally taking the product away from little kids who wanted to buy it—in order to juice demand later. Customers hated it, but the forced scarcity grew the overall business, for the same reason Girl Scout Cookies are only available a couple months a year. Tagalongs superfans, such as myself, might not like that strategy, but it works really well.
Hollywood’s “windowing” practices are basically the same. Movies were available only in certain places—theaters, pay TV, free TV, airplanes, Apple Watches—for certain times, depending on where revenue could be maximized without impacting other windows too much. Now the windows are breaking, and Chapek is using the “audience” excuse to justify carrying the sledgehammer when it’s still far from clear that all the shattered glass will ultimately lead to a stronger company. Jason Kilar uses the same customer-first language at WarnerMedia. “Serving the audience” is the new “synergy.”
Audiences love low prices, yet since becoming C.E.O., Chapek raised the cost of Disney+. Audiences hate integrated product sponsorships, yet ESPN’s SportsCenter is now cluttered with clunky in-show ads that render it almost unwatchable. Parks visitors really, really hate being charged extra to ride high-demand attractions like Star Wars: Rise of the Resistance, yet Chapek pulled that move this year. There are business justifications for all these shifts, but they’re exactly that, business justifications, not some Pollyanna-ish “relentless focus on the audience.” Chapek knows this, he’s just not saying it out loud.
What Chapek really needs to do to grow audiences this year is to spend money, and a lot of it. I don’t envy Disney C.F.O. Christine McCarthy. Just look at a few checks Disney almost certainly needs to cut in 2022:
1. Comcast: Disney desperately needs to buy out Comcast’s 30 percent stake in Hulu now, rather than waiting until 2024 when this whole war for streaming scale could be decided. That will likely cost Disney at least $15 billion, according to analyst Rich Greenfield, far more than the $9 billion “floor valuation” in their deal. Too expensive? Remember, Chapek has projected 230 million to 260 million streaming subs by 2024, way more than the current 179 million across all its services, and the numbers have been slowing. To get to the goal, most people believe he needs to figure out how to integrate Hulu and ESPN+ into one Disney+ super-product worldwide. Full control of Hulu pronto is key to that strategy.
2. Cricket: As I mentioned in my 2022 predictions, Disney is under pressure to re-up its Indian Premier League cricket broadcast rights in India, where 44 million people subscribe to Disney+ via the Hotstar unit inherited from Fox (that’s about 30 percent of total Disney+ subs). The price could go as high as $1.5 billion per year, compared to the current $500 million. Greenfield thinks (and I agree) that Chapek will pay “whatever it takes” to keep I.P.L. rights. But it will be costly.
3. Content: To borrow a Book of Boba Fett metaphor, streaming services are like Sarlaac Pits for money; they require constant feeding and once they start digesting, it’s very difficult to break free. Chapek has already projected spending $33 billion on content in 2022, $8 billion more than in 2021. Great news for film and TV creators, but bad news for McCarthy. Perhaps more troubling, the Marvel and Lucasfilm audiences seem to be tapped out, meaning Disney needs to create more general interest entertainment that can break through the clutter, which is a lot harder than just greenlighting 10 Avengers spin-offs. Plans are afoot, and the Disney creative teams are more than capable, but again, it ain’t cheap.
Given all the challenges, it’s pretty clear there’s really only one pillar for Bob Chapek’s Disney in this bizarre transition era: Spend, spend, spend, and hope that it’s enough to create a real business out of streaming. With its brand and I.P., Disney is well-positioned. But that’s the actual goal here, the “audience,” for Chapek, is just the means to an end.