The following is a lightly edited transcript of our Nov. 22 conference call for Inner Circle subscribers, Puck’s highest tier of membership, featuring Matthew Belloni, Dylan Byers, and William D. Cohan, discussing the Disney board’s smoke signals, Iger’s potential M&A playbook, the emerging succession prediction market, and more. To join our next off-the-record live session, upgrade your membership here.
Ben Landy: Matt, I want to start with the shock level in Hollywood as this news broke last weekend. You noted in recent weeks that there were signs of unusual activity from Bob Iger. How long do you suspect this coup was in motion, and how quickly did it all come together?
Matt Belloni: That’s a complicated question. Iger knows the Disney board members, and he’s very close with a number of them, and they’ve had conversations over the time that he’s been officially out of the company. My understanding is that before Bob Chapek was reupped, there were conversations about whether they were gonna reup him and what the other options were, because some of the board members had their own personal ideas and connections to people that might make good C.E.O.s. Ultimately, of course, they decided to reup Chapek, but with a renewal for only two additional years.
It seems the actual impetus came very recently. I don’t know whether it was Thursday or Friday of last week, but my understanding is that it was a pretty quick process, where Susan Arnold reached out to Iger, and said essentially, what do you think? You could say that it was the disastrous earnings call, or it was the way that Chapek comported himself on that earnings call, which was objectively pretty bad—or you could just say this was death by 1000 cuts, and that this was perhaps the last straw. But there were a lot of other things that led to this. And the board finally just said, okay, it’s time.
Dylan Byers: I do think that this is two things. One, it is death by 1000 cuts. There was so much from the get go, if you look at Bob Chapek’s handling of the Florida situation, Geoff Morrell, and so on. And then of course you’re doing this with the stock dropping and all of those economic headwinds. On the other hand, my understanding from the folks that I’ve talked to is that the last earnings call, and specifically Chapek’s handling of that call, may have been the straw that broke the camel’s back, and may have been the moment at which all of that frustration and disappointment that had been building up over the course of years finally landed and forced the board into action.
Matt: And the other thing was his knee-jerk reaction to the stock drop after the call. I mean, there were high level executives that didn’t know he was going to mention layoffs in that email that he sent to his senior managers. I know specifically that the H.R. group was like, What? That’s a big deal.
Just one detail about how it went over: There was a Disney+ concert with Elton John on Sunday night, and I talked to somebody who was in the suite when the news broke, and it was like a bomb went off. And everybody was checking their phones. At the same time, down the street in LA, they had to literally remove Dana Walden and Craig Ehrlich from the American Music Awards to get them this news right before it broke. So this is not something that was like, choreographed over days or weeks within Disney. This was a shock announcement to even the high up executives.
Bill Cohan: I’m just wondering what role Dan Loeb, the hedge fund manager who reupped his stake in Disney in August, to the tune of about a billion dollars, had in all of this. Of course, a billion dollars is immaterial to the overall market value of the company. But as an activist investor with a concentrated position, he put forward his plan for what Chapek should do, or should think about doing strategically with Disney, whether it was spinning off ESPN and loading it up with debt, buying Hulu back sooner, cutting expenses, paying off some of that $50 billion of debt, or getting two board seats. And it seemed like Chapek basically ignored him or paid lip service to him. And with the stock price down 40 percent through the course of the year, a guy like Dan Loeb just doesn’t sit there and say, Oh, thank you Bob, I know you’re trying but we’ll just wait until you can make the results come through.
Dylan: If you were anywhere remotely close to Iger’s inner circle, you knew that he was kind of shit talking Chapek for a really long time. The seeds for this happening, while I don’t think anyone could have predicted it, had been laid for a long time.
The other thing that stands out to me is that when Iger made his initial announcement that he was leaving the company, or step back into the chairman role, it also felt incredibly abrupt. One narrative out there is that Iger is like, you know, the consummate C.E.O., and this great leader is stepping back in to take the reins and save the company that he cares so much about. And there’s undeniably a lot of truth to that narrative, but at the same time you look at how chaotic his own exit was, and the chaotic nature of his reinstatement, and it does sort of seem like Disney has some fundamental problem in terms of how these things are being handled that very much began when Iger was still in control.
Matt: I think that had a lot to do with the pandemic. I mean, clearly Iger saw what was coming in China and made that move because of that. If he didn’t, then it would have been perceived as him bailing on a company in trouble when they were shutting down the parks, or laying off thousands of people. I think that played a lot of role in it. But this also shines a light on the board, and I think the board doesn’t look great in this situation. I mean, Susan Arnold, the board chair, was one of Chapek’s biggest supporters. And she was fully supportive of his strategy. And I know behind the scenes she had some questions, but this does make this board look a little bit reactionary, doesn’t it? Like, they’re just hitting the panic button.
Bill: And that’s another thing that Dan Loeb pushed for in his letter in August, that the board needed a “reset.” That they needed people on the board who actually understood something about media and entertainment, etc, etc. And, of course, Chapek didn’t reset the board. It’s not something that can be done right away, but he didn’t make any noise about resetting the board.
Matt: That’s my question. The fact that the Walt Disney Company board had a C.E.O. without any content experience, and a board without any content experience… Maybe they can get away with that with Iger, but I don’t think they could get away with that with Chapek.
Bill: So why would Iger want to come back and do this? I thought he wanted to buy the Phoenix Suns or run for president. What happened?
Matt: I think that is one of the more pertinent questions: Why did he come back? And what are his moves gonna be? Because I think there’s ego involved—he is now the guy who is being asked to come back and fix all the problems of the successor. Second, I do feel that he has loyalty to this company, and he cares very much about it. And it pained him to see what was happening.
Bill: But he doesn’t care enough about it to pick the right guy to succeed him…
Matt. Well, he didn’t know was the wrong guy at the time. Pretty clearly, right after he picked him, he started having second thoughts, but I don’t think he purposely picked a bad guy. He had to pick somebody. And he had three failed attempts to pick people, so this was the best option in his mind at the time. I don’t think he purposely sabotaged their company.
But third, what’s he got up his sleeve? There’s a whole school of thought that says you don’t just do this to just manage this company and right the ship, you do it to make a mark, to have one final deal or to make one more big impact. And that leads to the question of what Iger’s next moves are. I mean, he’s already dismantling the whole distribution reorg that Chapek put in place, Kareem Daniels out, and I think we’ll see more moves to put people in power with more of a creative background to actually take ownership of their divisions. Is there a deal on the table or something in his mind? You know, a lot of people think this is just him coming back to sell the company to Apple…
Bill: That ain’t happening.
Matt: You don’t think that’s happening? I agree with you that I don’t think that would pass regulatory muster. But who knows, maybe he’ll try. Maybe he’ll go after Netflix. Maybe instead of figuring out what to do with Hulu, maybe he does some big joint venture with Comcast, where all of the content goes on to one of the Disney+ or Hulu platforms, and Peacock goes away. I do believe that he comes back with something in his head of what he wants to do.
Dylan: I agree, I don’t think you come back to do this unless you’re going to take some bold strokes. And I don’t know if it’s as big as you’re talking about Matt, although it might be, but I also wonder if it’s finally time to spin off ESPN, which is something they’ve been looking at since the last years of Iger’s tenure. And I know it’s something Dan Loeb has asked for.
Matt: I am a little more skeptical on that. I think Iger believes in that brand. He is a sports guy, and it means something to him. You know, when you go to his office in Burbank he literally has a cheesehead in his office that he took from an ESPN restaurant that he just liked, and wanted in his office, because he’s a Packers fan. I think in his mind he probably thinks that it would be a failure to sell it off, and that they could figure out a strategy that would reinvent ESPN for the digital age. ESPN+, obviously, would be the venue.
And you know, maybe it’s a video game company. They have not been a player in video games at all. Iger has tried several times, unsuccessfully. That is the segment of entertainment that is growing. These other segments—not growing. So what is he going to do to reverse the narrative and create a growth narrative? That’s the question.
Bill: What can he do, though? I mean, we’re in a very different interest rate environment, the stock is depressed, he doesn’t really have a currency he can use to buy companies. He’s in a much different antitrust/regulatory environment than he had during most of the 15 years he was C.E.O. I mean, the F.T.C. is blocking—and probably rightly so—Penguin Random House’s acquisition of Simon and Schuster, a $2 billion deal. So are they really going to let Disney buy more? It’s already an M&A factory over there. They’ve already gotten most of the best stuff, and they’re gonna be allowed to get more? I don’t think so.
Matt: The debt is interesting because of interest rates right now, and because of the debt they took on for the Fox deal, which was not insignificant. There are people who believe that that wasn’t a great deal for Disney, at least not yet. I tend to believe that those assets are pretty significant, and Disney has not even yet attempted to utilize them. Like when Marvel starts making movies based on the Fox-Marvel properties, I think we’re gonna see significant benefits.
Bill: But they were forced to pay more than they wanted to, and they now have this $50 billion debt. I mean it’s different from Warner Brothers Discovery’s $50 billion in debt because they have more cash flow. But, still $50 billion of debt is a lot of debt and Dan Loeb wanted them to pay that down. And they really haven’t done that to any significant degree.
Matt: Yeah, if the new Avatar movie is a success, and it’s a renewed franchise that will last for the next 10 years, then that’s another big asset they got from Fox. If it flops, then that’s not great. [Laughs.]
Dylan: So the other thing that they got out of that acquisition was some of the executive and creative leadership. And I wonder, what is the over under on Peter Rice coming back? Because he’s sitting out there as a free agent.
Matt: I don’t think Peter comes back unless Iger says to him, This job is yours for the taking, I want to groom you for the next two years, come back and be my number two, and in two years you’ll be the guy. But I don’t think he comes back if it’s for the same job as before. First of all, that would be stepping on Dana Walden, and they’re friends. The optics of that are not great. And I just don’t think you go back unless it’s for something new and potentially much bigger.
Dylan: I mean, given Iger’s history, he could just tell Peter that that’s what he was gonna do and then…
Matt: Not do it? [Laughs.] I don’t know, Peter is a much more beloved guy in the circles that Iger travels in. It’s not like casting out Jay Rasulo or someone like that who doesn’t really have a profile in Hollywood.
Ben: I just wanna jump in because we have a bunch of great listener questions. Just to build on the conversation you’re having right now, are there other big name executives that you expect will leave alongside Kareem, and are there also are there other people who you think might come back, like Zenia Mucha?
Dylan: I think she comes back.
Matt: I don’t. I think she consults. I think she’ll be his right-hand person, on call with a big contract, but I don’t think she will come back in the role where she is running the show and responsible for, you know, every P.R. person from here to Beijing. This is speculation, but that’s my guess.
Dylan: Ok, I think that’s right. But I just don’t see, given her loyalty and how seemingly essential she was to protecting the Iger brand…
Matt: She’s still representing him! When I wrote about Iger last week I called her and she’s the person.
But in terms of some of the other creative executives, I mean, Disney is clearly going to be absolutely overhauled. All of those deputies that were in that Kareem group are all super vulnerable. You know, I don’t see Iger making big changes on the creative side, at least not at first. But there’s this weird situation at Disney: Hulu has a president that is not really involved in the content of Hulu and is essentially a distribution-arm person that is in charge of Hulu, and then they have creative executives that are in charge of the content, and I think that will all go away. It will be very specific, like, this person is in charge of this outlet, running the P&L and the content on that outlet, the budget, and you have accountability and responsibility. That makes more sense to me in the Iger worldview than this confusing situation now where they have these distribution-type people that are running the businesses, divorced from the content that is fueling those businesses.
Ben: Do any of you think that the leadership of this company could eventually be split between a top-level creative person and financial person, like a Sarandos and Hastings, co-C.E.O. situation, harking back to the Disney executive partnerships of Eisner and Wells or Walt and Roy? Or is Iger just going to run the show himself?
Matt: I mean, that would make sense for Peter Rice, right?
Dylan: It’s hard to think about there being any sort of dual role in an Iger administration. But I think, conceivably, you could set the company up for that two years from now.
Bill: The wider question would be, who is he going to have as his replacement? He’s got two years but he must have some idea about that right now. Is Tom Staggs coming back? Is Kevin Mayer coming back?
Matt: I don’t think there’s any love lost there. One name I’ll throw out: Jeff Shell is sitting there as the C.E.O. of NBCUniversal, and executives in the Comcast world tend not to stay there long. I could see Shell being someone that Iger would look at to try to bring over in a high-level role, maybe a No. 2, or in a role that would indicate that he’s potentially got the C.E.O. opportunity. Shell has experience in film and television, and ran the international business for Comcast for a while. Universal has parks, and although he’s not running that, Shell has been exposed to the parks. And importantly, he’s got the ear of Hollywood, where he has relationships. He lived in Beverly Hills when he was running the film group in L.A. So I think Shell has that background that Iger would gravitate towards if they’re looking outside.
Bill: How about Steve Burke?
Matt: Maybe. He has a similar background, he was C.E.O. of NBCUniversal.
Or Iger could go internal. You know, Dana Walden is just sitting there. Now, if they were to eye her as a potential heir, she would need a crash course in a lot of the aspects of the Disney business that she’s not involved in right now. But having a female C.E.O. would be a big deal for Disney. They’ve never had one. And she’s obviously got the ear of the creative community and amazing relationships. But I don’t know how much experience she has with the other aspects of Disney.
Dylan: Is two years long enough for that crash course? Iger must already be thinking about who his successor is, because two years is not a very long time, in terms of a business, especially if you need to show someone the ropes of the product.
Matt: True, it’s not a long time. Although maybe he names someone and then he extends a year to do a handoff. Who knows what they’ll do. I mean, I think it’ll probably depend on who he chooses. Because once they find someone then they’ve got to figure out the strengths and weaknesses of that person. But yeah, two years is not that long.
One thing I think we’ll see very quickly is there will be a revised estimate of their streaming business. This whole notion that Chapek put in place that Disney+ will be profitable by 2024. I mean, nobody believed that was actually possible. And I think Iger will probably be honest about that pretty soon.
Dylan: My hope is that he’s more aggressive in continuing the move towards streaming, versus the more conservative Zaslav model, leaning heavy on linear. It would be amazing to see Iger take some bold moves to go where other companies with linear assets are too cautious to go.
Matt, earlier you were pointing out that Iger’s a sports fan. And I know he grew up in the ABC/Cap. Cities world, and he’s very sentimental about all that. But I think ultimately, his loyalty is to Disney and to the shareholders. And I’m not very bullish about the future of ABC at the company at all.
Bill: I mean, who would buy it? If you want something like ABC, you can buy Paramount Global right now, probably for less money. I mean, that’s an asset that nobody wants. So who’s gonna want ABC?
Matt: The ABC asset does provide benefits to the rest of the company as a promotional vehicle. You have a morning show where you can take the stars of your Marvel movie, and if you are watching their programming, they’re promoting all of the other stuff. So there is a reason to have it.
I also think that we’re not talking about the fact that these businesses are profitable right now. I mean, if Disney is looking at this giant money pit of streaming, and asking how do we compete, and they have these assets that are generating billions of dollars in revenue each year, would you just sell that off for a one-time price? I know it’s declining and ultimately it will be zero. But if you’re Iger and you’re looking at this balance sheet, it becomes a lot more difficult when you don’t have this revenue coming in from these legacy businesses.
Dylan: For sure.