The Iger Narrative Meets Its Nemesis

Nelson Peltz
Nelson Peltz, the founder of Trian Partners, has gone public with scathing criticisms of Disney. Photo by Evan Agostini/Getty Images
Matthew Belloni
January 12, 2023

How dare this guy! Bob Iger did not return triumphantly to Disney to be second-guessed, and certainly not by an 80-year-old former P&G and GE investor and former junk bond salesman like Nelson Peltz, the founder of Trian Partners, who went public with some pretty scathing criticisms this week in his pursuit of a Disney board seat. A “company in crisis”? A “flawed” streaming strategy? Ongoing “self-inflicted” wounds? That is not The Iger Narrative.

Iger is a famously careful manager of his company’s image (and his own), and he’s been very clear about The Iger Narrative since he returned as C.E.O. in November: He’s giving power back to the creatives who felt marginalized by his successor/predecessor Bob Chapek. He’s comforting theme parks fans by ending fees to park at hotels and to download ride photos. He’s strolling with kids down Disneyland’s Main Street, honoring the late Barbara Walters in her ABC tribute special, and enjoying the College Football Playoff’s championship game, broadcast on ESPN, in a SoFi Stadium box (standing next to sports manager Ken Katz).

And while the Disney stock chart in 2022 resembled that final drop on Splash Mountain—down 45 percent, hitting an eight-year nadir—Peltz knows this was part of an industry-wide retreat following the Great Netflix Correction. Everyone’s drinking their hangover cures these days, cutting costs and walking back those lofty all-in-on-streaming ambitions. Indeed, in response to Peltz and Trian, Disney explained that Iger’s already got a plan to “adapt the business model for the shifting media landscape, rebalancing investment with revenue opportunity while bringing a renewed focus on the creative talent that has made the Walt Disney Company the envy of the industry.” 

Iger may not have fully rolled that out yet, but it’s happening; he wasn’t summoned back to Disney to stay the course. And, most important, Iger is definitely, 100 percent, absolutely interested in finding a successor to take over in two years… Or at least he’s making moves like he is, creating a specific board committee with that task, headed by the guy who’s about to be the new chairman, Mark Parker of Nike, who is replacing Susan Arnold, termed out and embarrassed by re-upping Chapek months before firing him and all the succession drama that followed.   

Iger’s translation: Back off, Nelson. Disney’s $250 billion market cap in early 2020? I did that. Marvel? Pixar? Star Wars? Disney+? Stock gains of 554 percent, more than double the 244 percent return generated by the S&P 500? That was my first tenure, buddy

Past performance is no guarantee of the future, of course, and Peltz’s move did juice the Disney stock about 3 percent, with some believing he will bring about positive change. But inside Disney, Peltz’s board diatribe and his special advocacy website, cutely titled “Restore the Magic,” are being dismissed as very long on complaints and cherry-picked facts, very short on ideas or potential solutions. “Reduce corporate overhead”? Of course. Generate “real cash flows and real projections”? Uh, great. Peltz’s argument is basically, The stock is down, I want Disney to perform like the other VERY DIFFERENT companies I’ve invested in, now let me on the board and that will happen.    

So Iger’s not wrong. Employees and investors cheered when he returned to the company before Thanksgiving. Why would they rebuke him now—something the shareholders never once did when he was C.E.O. from 2005 to 2020, even after the failed digital ventures and that fallow film period with Prince of Persia and John Carter and Tomorrowland—and give a board seat to a guy who, despite his long letters and Powerpoint presentations, hasn’t really bet significantly on a pure-play media company, let alone one at a moment of industry-wide transformation, as Disney finds itself now? Peltz, as he himself notes in his materials, is mainly an old economy investor—consumer products, retail, chemicals. Yet he went on CNBC this morning and declared that the streaming video business is “easy.” Yes, that happened.  

Peltz may be a billionaire and the holder of some $900 million in Disney stock. He can force Iger and C.F.O. Christine McCarthy to sit and listen to a 45 minute presentation, as he did this week. He can say he was unsatisfied with an offer to be an “advisor,” even though Disney sources tell me Peltz is overstating what was actually offered to him. He can push a proxy fight at the shareholder meeting, likely in the spring, and make unfavorable comparisons to companies like Netflix, which Peltz argues Disney is failing to out-gross “despite having a significant I.P. advantage.” As if Netflix didn’t have a ten year head start in streaming. Silly stuff like that.  

And Peltz can go after Iger personally, even though he’s not pushing for a new leader. “The stock is essentially flat since the day prior to the current C.E.O. change, signaling that investors believe the required fix is about more than one individual,” Peltz wrote to the board, attempting to shoot down the Iger-as-savior theory and questioning why Disney has not held up better than its media peers. “This correlation with inferior competition we believe exists because the power of Disney’s assets are no longer evident in the company’s financial performance or outlook.”

Sure, fine, if shareholders buy what Peltz is selling in the proxy fight, good luck to them. More likely, Peltz will not win that board seat, it won’t even be close, and all he’s doing is disrupting and distracting, screwing up The Iger Narrative and forcing a C.E.O. who typically plays offense to get back on D. 

Now, instead of talking about how Iger will cut costs and increase profitability (while also investing in Disney’s creative engines), analysts and the media are skeptically revisiting Iger’s acquisition of the 21st Century Fox assets. Peltz traces the company’s underperforming share price to that $71 billion deal, which contributed to Disney carrying $50 billion in debt, far more than with the Pixar, Marvel and Lucasfilm transactions. He cites a dip in free cash flow from $9.8 billion in 2018 to just $1.1 billion today, a 50 percent drop in earnings per share, and the elimination of the company’s dividend. And CNBC, owned by Comcast C.E.O. Brian Roberts, Iger’s old nemesis who ran up the price of Fox in the first place, has been going nuts with this story, giving Peltz a big chunk of airtime this morning and plugging him on Jim Cramer’s show and elsewhere. (I was on today discussing the topic too.)   

Not mentioned by Peltz, however: The pandemic! That’s when Disney’s dividend disappeared—when its parks and cruises were shuttered, when its seven billion-dollar grossing movies from 2019 turned into zero in 2020. We can argue about the long-term wisdom of the Fox deal, and there are smart people who believe Iger saddled the company by overpaying. “The deal impaired Disney’s balance sheet, diluted its focus on branded family entertainment, and significantly increased the company’s exposure to linear and streaming content aggregation assets that had already begun to decline in value,” the Cowen analysts wrote in a recent note. It’s definitely never been clearer that Rupert Murdoch sold at exactly the right time.

But let’s not forget that Fox gave Disney a lot: the Avatar franchise, the second movie of which is on track to pass $2 billion in theaters right now, with three follow-ups planned; control of Hulu; all those FX shows and executives; and The Simpsons, an anchor of Disney+. And Marvel’s Kevin Feige hasn’t even made a Fantastic Four or Deadpool movie yet. Fox, in many ways, provided Disney the scale to be compared to Netflix, even if unfavorably by guys like Peltz.

In reality, the Peltz critique is actually coming at a weird moment of market optimism for the legacy Hollywood studios. Most of their stocks are up in 2023, and analysts have actually upgraded troubled companies like Warner Bros. Discovery. No, they haven’t figured out the double-whammy problem of accelerating linear declines (6 percent annually) and the enormous cost of competing in streaming. But a few analysts, like at Goldman Sachs and BofA, are starting to say that the worst might be behind them. Disney, as always, is well-positioned, given its assets, I.P, and Walt’s flywheel.  

If so, Iger is probably right to rebuff a guy like Peltz. There’s definitely room for (and probably a need for) new director voices, and a big reason why Disney has this succession problem—the one great point Peltz has made—is because the board, as it is currently constructed, rarely questions Iger’s judgment. But Disney seems to need more people with real media and entertainment experience, not a professional activist investor like Peltz, who sees some numbers that should be better and pounces.

This article has been updated.