Disney’s ‘Everything on the Table’ Era Begins 

Disney C.E.O. Bob Iger. Activist investor Nelson Peltz announced an end to his proxy war with the company.
Disney C.E.O. Bob Iger. Activist investor Nelson Peltz announced an end to his proxy war with the company. Photo: RB/Bauer-Griffin/GC Images

It’s been a big couple of days for the Walt Disney Co. and its new/old C.E.O. Bob Iger, beginning a “significant transformation” of Hollywood’s largest entertainment company and fending off an insurgency from investor Nelson Peltz and his silent cohort, disgruntled Marvel chair Ike Perlmutter. So I asked my Puck partner Bill Cohan, a financial journalist and former investment banker, to join me to break it all down. Our back-and-forth on everything from the possible sale of Hulu to why Ike is so bitter in the first place, is below…

Matt: I’ve rarely been accused of drinking the Disney Kool-Aid (or is it Dole Whip?), but the much-anticipated earnings reveal yesterday seemed to hit all the right notes that Iger needed to hit. 

Bill: Sometimes it’s better to be lucky than good. It’s probably safe to say that much of what Iger reported for the fourth quarter of 2022 was already in the bag by the time of his November return. But I do give him credit for conceiving a reorganization that puts the creatives back in the driver’s seat.

Matt: All of it. The analysts who demanded major cost cuts got 7,000 layoffs and $5.5 billion in planned reductions, including $3 billion in content shrinkage. The streaming loss narrowed to just $1 billion, with Iger recommitting to profitability there by 2024. The creatives got an endorsement, with Iger uniting film, TV, and streaming in one Entertainment unit and declaring Disney will “return creativity to the center of the company” (even if it will make fewer shows and movies). And by December, investor Nelson Peltz will get his cherished dividend, the first since the pandemic. The stock is down a little more than 1 percent today, but up 24 percent for the year. BofA analyst Jessica Reif Ehrlich said it was “decisive action,” which is what Iger needed to convey, and Peltz wisely backed off his dumb crusade for a board seat. 

Bill: I would just remind your Hollywood readers, Matt, that Peltz has a way of getting what he wants even if he loses a proxy fight—as he did when he went after DuPont—or if he never even engages in a proxy fight, as occurred at GE. 

Matt: Well, he kinda did win here! Trian’s Disney stock is up 10.5 percent since Jan. 12, when Peltz went public with the fight, and you could argue that Disney leaned into the cost-cutting and dividend thanks to the pressure, though I think cuts were already happening. Peltz should be happy, maybe treat his buddy/instigator Ike Perlmutter to a Peppermint Frosty at the Wendy’s in Palm Beach.   

Bill: I would urge our friend Iger not to get too complacent with a quiescent Peltz. The crocodile is still there, just below the surface, “watching,” as he said today. Remember, at DuPont and GE, Peltz and Trian were catalysts for existential changes. At DuPont, I can see Peltz’s fingerprints all over the replacement of longtime C.E.O. Ellen Kullman with Ed Breen, a Peltz favorite and DuPont board member who happened to be available after Kullman unexpectedly “resigned.” And Trian ran the same playbook at GE, but without resorting to a proxy fight. It bought some $2.5 billion of GE stock, and then proceeded to “bare its teeth” in the replacement of Jeff Immelt with John Flannery as C.E.O., in June 2017. Then, after 15 months, Trian led the coup that replaced Flannery with Larry Culp, a Peltz favorite who also happened to be hanging out on the GE board. 

Matt: You take Peltz a lot more seriously than I do. The link between Nelson and his pal Perlmutter has been the most interesting to me, because insiders at Disney know how vengeful Ike is, and Iger went public today about Ike being marginalized at Marvel after he tried to fire Kevin Feige, perhaps the most important Disney creative executive since Walt. Ike “was not happy about it,” Iger told CNBC. “And I think that unhappiness exists today. And you know, what the link is between that and Nelson, his relationship. I think that’s something that you can speculate about. I won’t.” That’s Iger pushing a sharp dagger into Ike. On CNBC. Fantastic television.     

Bill: Matt, I’m a little light on my Ike Perlmutter resume. Why do he and Iger hate each other so much?  

Matt: There’s a whole backstory that doesn’t really get reported. Perlmutter sold Marvel to Disney in 2009, and in that deal, Iger let Ike run the unit. They had a good relationship, and Ike was kinda in awe of Iger, but Ike was also really difficult, screaming at many Disney executives, and calling Iger at all hours with random suggestions. First-ballot Asshole Hall of Fame stuff. And then Ike sided with Alan Fine, who was running Marvel’s creative committee in New York, when Fine didn’t want to make Black Panther and Captain Marvel and diversify the Marvel slate, as Iger wanted. Ultimately they announced those movies, but then Ike didn’t want to budget them. It was a real problem, and Feige was becoming miserable under Ike’s thumb. Finally, Kevin went to Alan Horn and Alan Bergman at the studio, and then Iger got involved, and he smartly sided with Feige and put Marvel film under the studio, not Perlmutter. So Ike was pissed. Then in 2019, Iger took Marvel TV out from under Perlmutter, and he was even more pissed. Cut to last year, when his buddy Peltz emerges.

Bill: Nothing like a peeved billionaire who can’t get his way. No wonder Ike was angry and teamed up with Nelson, a billionaire who does know how to get his way. 

Matt: The big headline for me is Iger’s willingness to sell Hulu, saying “everything’s on the table.” It’s not a huge surprise; I reported on Sunday that Disney was working with Goldman Sachs to figure out whether it made more sense to offload the asset than to spend $9 billion or so to buy out Comcast’s 33 percent in 2024 or sooner. But Iger also is cooling on the adult, non-branded programming that has powered Hulu. “I’m concerned about undifferentiated general entertainment, particularly in the competitive landscape that we’re operating in,” he told CNBC. Rich Greenfield, the analyst, thinks Iger will try to sell Hulu because it’s “not differentiated enough from Netflix, Amazon, HBO Max and Apple TV+,” he told me today. I’m now inclined to agree. This is all coming as Disney+ didn’t lose a ton of subscribers despite a big 40 percent price increase in the U.S. for the ad-free tier. If you exclude losses from Hotstar in India, Disney+ actually added subs this quarter. So maybe Iger thinks he can suck all the content from Hulu to Disney+, raise the price again, and sell the Hulu pipes to Comcast or whomever. What do you suppose Iger is thinking in streaming? 

Bill: Look, Matt, there’s a limit, which we are fast approaching, to how much money people are willing to spend on streaming services. If Iger thinks he can raise prices further on Disney+, God bless him. Prices are going up for Netflix, Hulu, Paramount+, the whole lot of them. My bet is that the consumer is going to say Basta! and will pick and choose. It’s likely that Disney+ and Netflix will survive the shake-out, with perhaps a twist of Hulu, depending on whether it ends up at Disney, Comcast, or they jointly decide to put Hulu out to bid, although I have no idea who is out there hoping to get deeper into the streaming wars. I’m sure Amazon has enough with Prime and MGM. Paramount and Hulu? N.F.W. I suspect Disney will end up keeping Hulu and folding it into the Disney bundle, forcing adults without children to make some hard decisions. 

Matt: Yeah, although this could just be Iger trying to drum up bidders, or maybe he wants Comcast to think he’s willing to walk away from a deal. Iger didn’t offer a lot of intel on further M&A plans, except saying ESPN isn’t for sale, which nobody seems to believe. Siloing ESPN in its own unit certainly makes it easier to sell or spin off. And the economics of sports on cable TV are getting brutal. Disney’s networks group operating profit dropped 16 percent, and Iger warned that the pricier NFL deal will cut into profits even more. “We’re simply going to have to get more selective” on sports, he said, which I took as public negotiating with the NBA. Warner Bros. Discovery C.E.O. David Zaslav has been doing the same, saying “we don’t have to have the NBA.”     

Bill: Who knows what kind of head fakes Iger is engaging in with ESPN and Hulu. But I still really like the idea of swapping Disney’s 80 percent stake in ESPN for Comcast’s 30 percent stake in Hulu. The valuations can be adjusted with cash, with the help of my friends from the investment banking community, and the transaction would be tax-free to all parties. And then Comcast’s NBCU will be set up perfectly for a merger with WBD anytime after April 2024. I should put a bow on these two deals right now, collect my fees, and then head off to Allen & Co.’s Sun Valley conference for my champagne toast. These deals are going to happen; it’s just a matter of when. 

Matt: You’re very confident! One investor suggested to me that Iger backing away from general entertainment is an implicit admission that Disney’s $71 billion acquisition of the Fox assets was a mistake. I don’t agree there. Everyone is pulling back on content spend right now, so Disney naturally is focusing on its core offering, and I do think if Disney hopes to compete with Netflix globally, the general interest stuff must remain some part of that. If I’m Ted Sarandos and Greg Peters at Netflix, I’m praying Iger decides to keep his content offering at the kiddie table. What’s your take on the revisionist wisdom of the Fox deal?

Bill: I agree with Peltz that Iger ended up overpaying for Fox. $71 billion is a damn steep price, and leave it to the crafty Comcast C.E.O. Brian Roberts to bid Bob up to get Rupert’s baby. Roberts is one smart deal guy. I had a front-row seat on his $72 billion acquisition of AT&T Broadband back in 2001, and have studied extensively his clever deal for NBCU, buying something for around $30 billion without an auction that soon became worth close to $100 billion. (It’s worth less these days, but still way more than the $30 billion or so Comcast paid for it.) 

His only major blunder was the Sky deal, but he more than made up for that mistake by forcing Iger to leverage to buy Fox. Now Disney has that $50 billion mountain of debt to scale. Iger said today that “leverage is not a huge concern,” but clearly it’s not great when Disney has lost $10 billion and counting on streaming and is only now coming out of the pandemic shutdowns. As I’ve written before, the Disney $50 billion of debt is not the same as the WBD $50 billion of debt; Disney is in a far better financial position than WBD at the moment. Still, Iger will have a lot more flexibility to do what he and his activist investors want if they whittle down that debt. 

The ESPN/Hulu swap might be one way to offload some of it. The key now for Iger is the stock price. And his return has been a tonic for suffering shareholders. Peltz’s Trian is in Disney at around $90 a share. So with the stock now at $114 a share, he can afford to be a smiling crocodile. Dan Loeb is in Disney at around $120 a share. He’s not happy yet. But he’s probably willing to let the Iger sequel play out longer before rearing his head again.  

Matt: Dana Walden and Alan Bergman are now running the new Entertainment division, which naturally gives them a boost in the succession race. Or does it? Iger has a long history of kneecapping his heir apparents. Also I’m already hearing John Landgraf at FX is poised for a larger role running more of Disney’s “adult” TV content.    

Bill: I would agree that a Disney insider has the best chance of succeeding Iger. The last time Disney went with an outsider as a senior executive—the ridiculous choice of Michael Ovitz—it was a total disaster, although it did contribute to Iger being selected to succeed Michael Eisner. The clock is ticking on Iger’s succession process. He screwed up the first time by picking Bob Chapek and he and board chair Mark Parker now have until November 2024 to find a second successor. 

I am sure Bob feels like he is drinking from the fire hose—quelling the activist investor uprising, dealing with changes on the board, restoring morale damaged by Chapek, resurrecting the stock price, and now the Florida legislature has passed a bill allowing Gov. Ron DeSantis to take over the special Disney district in Florida—but getting succession right is most important. And he’d better get it right this time. If he and Parker were smart, they would enlist Peltz’s help. After 80 years, Peltz carries a massive C.E.O. Rolodex, and, as I described above, Nelson tends to get the C.E.O. he wants one way or another. 

Matt: David Zaslav and his C.F.O. Gunnar Wiedenfels must be looking at this Disney situation and smiling. They were destroyed in the media last year (including by me!) for the layoffs, slashing budgets, scrapping Batgirl, licensing to rivals, and re-focusing on profitability over streaming subscribers. Now Iger is doing the same thing at Disney, and Shari Redstone will likely announce some version of this plan next week on the Paramount earnings call. 

Bill: Yes, I am sure Zaz is happy the spotlight is off of him so far in 2023. And that’s largely because the WBD stock has been up a whopping 50 percent this year. Why that is, I haven’t a clue. But I’m happy for Zaz. The stock probably was oversold last year. On the other hand, there are the problems at CNN that our partner Dylan Byers has been writing about, and of course, Matt, I worry about our little friend, WBD’s $48 billion or so of net debt. The combination of that much debt and a moving EBITDA target is enough to make a bondholder credit rating agency nervous. The good news for Zaz is that the merger with NBCU is just around the corner.