The Bull Case for Chapek & Zaz in Sun Valley

Bob Chapek
Wall Street is still bullish on Bob Chapek. Photo: Jeff Gritchen/Getty Images

In the aftermath of the Peter Rice drama at Disney, Dylan Byers and William D. Cohan discuss why Wall Street is so bullish on Bob Chapek, the odds of a Dana Walden succession, and why the pressure is on for David Zaslav. 

Dylan Byers: Hi Bill, happy summer. I’m on vacation this week, but I was reading your thought-provoking conversation with our colleague Matt Belloni about Bob Chapek’s fate at Disney, and I have some thoughts and questions. Both of you seem bullish on Chapek getting renewed as C.E.O.—despite Florida, the ScarJo mess, Geoff Morrell, a struggling stock, and the sense that he very much isn’t a leader in the Bob Iger mold—and I don’t necessarily disagree. That said, I do find myself wondering whether or not Dana Walden, who was just promoted to overseeing all of Disney’s streaming and television content, could herself one day replace Chapek as chief executive, which would be particularly ironic since Chapek is said to have fired her predecessor, Peter Rice, at least in part because he posed a threat to Chapek’s control. None of this is remotely imminent, of course, but Walden has the creative savvy and career ambition, and now she’ll have the chance to develop the business acumen. Anyway, she looks the part, and it’d be a good look for the company to have a woman at the helm. Again, we’re years away from any of this, but… curious to hear your thoughts.

William D. Cohan: I hope you are having a nice week off, Dylan. You deserve it. Regarding succession at Disney, it all feels way too premature to me. Doesn’t it? Chapek is not exactly lighting the place on fire and the Disney stock is down 60 percent year-to-date, which makes him vulnerable to talk about Iger’s return or the fact that he may soon be replaced. But it’s also worth noting that of the 30 or so research analysts who cover Disney, 20 of them have a “buy” rating on the stock, with an average stock price target some 50 percent higher than where the stock is trading now. 

In other words, the Wall Street research crowd, which isn’t always the most objective, isn’t calling for his head and in fact thinks that the company’s prospects are rather grand as people get back to Disney’s amusement parks and back into theaters to watch Disney’s movies. Most of the time, if you still have Wall Street on your side, you can weather the storm, absent fraud or immorality, especially at an establishment company like Disney. Plus, Disney likes to give its chief executives a long leash. Iger was C.E.O. for 15 years. Michael Eisner was Disney C.E.O. for 21 years. Chapek is just past his second-year anniversary. So, unless there is another major screw up on his part, I’m not sure I see a catalyst for an early departure, although there certainly could be one that crops up out of the blue. 

As for a Chapek successor, maybe Dana Walden will be the one, but let’s check back in another ten years or so. She’s probably being a little too aggressive on the publicity front at the moment, though. Nobody likes that inside a company like Disney. 

Byers: That all sounds right. I also think there’s going to be a steep learning curve for Walden whenever the time comes to have this discussion. Disney TV is just a fraction of a business that also includes film, parks and resorts, and so on. The degree of difficulty is high, and at a minimum it requires several years under the tutelage of your predecessor. After all, Iger spent five years as Eisner’s C.O.O., effectively overseeing the business for half a decade before he was actually given the top title. (On that note, I wonder if it would have behooved Chapek to keep Iger a little closer during his final year at Disney.)

Cohan: Back in the day I spent two years working for Disney, restructuring the finances of EuroDisney, the theme park outside of Paris that the company badly bungled both in its financial structure and in its substance. For instance, it forbade patrons, the French, from drinking wine at the park, which was a culturally tone-deaf decision. 

Anyway, at that time, Disney was run by the powerful troika of Eisner, Frank Wells, and Richard Nanula. They were effective. Then Wells died in a helicopter crash and Nanula, who many thought might be the first Black C.E.O. of Disney, blew himself up in a scandal that still boggles the mind. I remember working closely at the time with Tom Staggs, who, like me, was down in the weeds with the numbers. Suddenly with both Wells and Nanula gone, people were talking about Tom Staggs as a potential Disney leader, until he was defenestrated too. So as with any corporate succession intrigue, there’s many a slip between cup and lip. For better or for worse, I think we just have to hang in there with Chapek for the time being, unless either the stock price takes another step function down or he commits another preventable gaffe. 

Byers: I think the string of preventable gaffes is what has Hollywood insiders buzzing in my ear about Walden’s ascent to the top of the Magic Kingdom, at least five if not ten years too soon. Whatever Wall Street’s confidence level, there’s a real sense in Hollywood that Chapek’s early tenure has been anything but smooth sailing—and obviously a stark contrast to the very polished, well-coiffed leadership of his predecessor. 

Zaz Economics & Sun Valley Predictions

Cohan: Dylan, what I worry about more than Disney, to be honest, is our old friend David Zaslav. Not personally of course, he’ll be just fine. More than fine, in fact. But I do worry about Warner Bros. Discovery heading into what sure seems like a recession, despite the recent administration jawboning that somehow that will be avoided. Warner Bros. Discovery has $55 billion in debt! That is an epic amount of debt. And Zaz has also committed to $3 billion in cost cuts. Where are those cuts going to come from, and is he on track to get them? CNN+ was low hanging fruit. Where are the rest of the cuts going to come from, and is the company on track for its $14 billion in 2022 EBITDA? Seems to me if Zaz misses on the $14 billion, or the $3 billion, there could be trouble in WBD paradise. What do you think?

Byers: I definitely hear that anxiety a lot these days, and the same people who were bullish on Zaz’s new empire in the runup to its launch now concede that he has an extremely hard road ahead—especially in this economic climate. Zaz and his ax man C.F.O. Gunnar Wiedenfels are moving aggressively, of course: HBO Max unscripted will likely get cut, as I reported last week. I’m not sure that CNN Films survives, either, despite Chris Licht’s assurances that there will be no layoffs in his shop. Still, all this is just nibbling around the edges of that $3 billion. And I’d like to be able to tell you that they’ve got a really easy plan for ripping off the band-aid, but obviously they don’t.

Cohan: Obviously the $55 billion of debt and the $3 billion of synergies were the price of admission for Zaz to get AT&T to do the deal with him. And I’m sure these were heavily negotiated deal points. It was crucial for AT&T to get rid of a big chunk of the $180 billion of debt that C.E.O. John Stankey amassed during the buying spree that brought both TimeWarner and DirectTV to AT&T. Getting rid of $55 billion of debt is one of the only real feathers in Stankey’s cap these days. AT&T shareholders don’t have much to crow about in the past five years—the stock fell 30 percent during that time—but the stock is back up nearly 5 percent this year in an otherwise horrendous market. I just worry that even though Stankey and AT&T did a faceplant on the TimeWarner deal, in one of the larger value destruction moves of the decade, he didn’t lay an egg on Zaz and Discovery. Again, that $55 billion looms like the Sword of Damocles. Do you think Zaz and his ax man are up to the task of whittling that down? Do you think something like CNN or Turner or one of the other crown jewels could be on the chopping block at some point? Maybe this will be a topic for Sun Valley? 

Byers: I can guarantee that this will be a top talker at Sun Valley, and I’m happy to report that I’ll be there to cover it. But as for offloading CNN or Turner, it’s hard for me to see it. Zaz has always described news and sports as the ancillary pillars to WBD’s core entertainment offering, and I think he recognizes that live programming like CNN and Turner Sports is not only lucrative in linear, but a significant part of the value proposition for streaming subscribers. Moreover, John Malone has said publicly that spinning off CNN is the coward’s way out, and I think Zaz hews pretty closely to that line of thinking—or at the very least doesn’t want to be portrayed as the coward. All that said, I do think there are ways to keep a CNN or Turner Sports in the portfolio while spending significantly less on the product. And that’s where these brands may be headed—which of course will create its own challenges.

Cohan: Hold on. You’ll be in Sun Valley, covering the conference? What side of the ropes? What possessed you to go there for this, aside from how beautiful Hailey and Sun Valley are?

Byers: I’ve gone every year since 2017 or 2018, always very much on the outside looking in—or rather, waiting for the inside to come out and have a cup of coffee. The conventional wisdom among media reporters seems to be that it’s useless to go to Sun Valley because reporters aren’t allowed access, save for shouting questions at executives as they walk in and out of the Lodge—something I’ve never bothered to try. Anyway, I couldn’t disagree more. It’s far and away the most fruitful annual expense on my T&E report, and the one event I feel like I absolutely need to attend to do my job. And that’s not because it yields stories in the moment, but because those 15-minute coffees on the sidelines foster source relationships that enhance my perspective on everything I cover, and yield a fair amount of scoops and exclusives later down the line. For a media reporter, skipping Sun Valley feels a bit like an N.F.L. reporter skipping the combine. You can get away with it, but I’m not sure why you’d want to. Maybe one day Herb Allen will loan me a vest and give me 5 minutes to come in and check out the bar, but either way I’ll continue to make the annual pilgrimage regardless. And yes, the Sawtooth is beautiful in the summertime. There are worse ways to spend a week in July.

Cohan: Any predictions for the conference?

Byers: Given the state of the world today, I’m anticipating a lot of discussion about headwinds, and what to do about them. Economic headwinds, political headwinds, regulatory headwinds, the sad state of the market, Covid and post-Covid disruptions, the crypto crash, the Netflix correction and the streaming subscriber ceiling, so and so forth. Then, more specifically, all the things you and I like to talk about: Chapek’s fate at Disney, how Zaz is going to save WBD stock, what Brian Roberts might buy, whether Shari Redstone is ready to sell. And there’s always some unforeseen drama that gets tongues wagging. It is summer camp, after all. Anyway, I’ll be sure to keep you posted.