Why Disney Is Betting Big on Streaming

During a recent visit to Wharton, Disney CEO Bob Iger said acquiring household names like Pixar, Marvel and Star Wars was key to the company’s strategy.
Disney, Disney news, news on Disney, Disney streaming service, Disney+, Bob Iger, CEO of Disney, streaming services, Netflix, US business news

November 23, 2019 21:56 EDT

When Bob Iger was 23, his first boss at ABC told him he was “unpromotable.” “I wish he were alive just to see that he was wrong,” Iger, now chairman and CEO of The Walt Disney Company, told Wharton management Professor Adam Grant during a recent appearance as part of the Authors@Wharton speakers series. Iger has a new book, “The Ride of a Lifetime: Lessons Learned from 15 Years as CEO of the Walt Disney Company.”

Even though the boss in question actually ended up being thrown out of ABC for embezzlement, “when your boss tells you you’re unpromotable, when you’re 23, it’s hard to dismiss that,” Iger said. “I just didn’t want to believe it, and fortunately I ended up getting another job at the company that he had no hand in.”

Over his more than 40 years in the entertainment business, Iger has proved himself to be anything but unpromotable — he rose through the ranks at ABC and then at Disney after the entertainment giant purchased the television network in the 1990s. Since taking the helm at Disney, a $236-billion empire that encompasses television, movies, theme parks and more, he has overseen lucrative acquisitions such as the Pixar animation studio, Marvel Entertainment, Lucasfilm and, last summer, a $71.3-billion deal to purchase 21st Century Fox.

The content and brand equity associated with those properties, along with Disney’s vault of classic films, are the cornerstone of Iger’s latest big move – the November 12 launch of Disney+, which aims to take on Netflix for the No. 1 spot among streaming services.

From Weatherman to the C-Suite

Iger started his career with aspirations of becoming a network television anchorman. He initially got a job as a TV weatherman, an experience that taught him he was better suited to working behind the camera.

On July 1, 1974, Iger took a job as a production assistant at ABC. He worked at ABC Sports for 13 years, including covering six Olympic Games. He was head of ABC’s entertainment division when the network was home to popular sitcoms like “Home Improvement” and “Roseanne,” and the TGIF programming block that included “Full House” and “Family Matters.” In 1994, he was named president and COO of the network’s parent company, Capital Cities/ABC.

“I worked my way from job to job,” he said. “I got in this position through a combination of applying myself, really working hard and never being fearful of the next opportunity that came my way, getting lucky, and having great mentors.”

Disney bought ABC in 1996 and Iger was named president of the business unit that oversaw Disney’s international operations in 1999. In 2000, he became COO of Disney, making him the No. 2 executive after then-chairman and CEO Michael Eisner.

Iger said he wasn’t sure that he would one day run Disney “until I was being told by the board I was getting the job 10 years later. It’s not something I dreamed of being, it’s not something I set my sights on early,” he noted. “I’ve always been the kind of person who did the job that was given to me, tried to apply myself and … [was then] given another opportunity. And that was the case — I never really looked beyond what might be the next opportunity until I was really close.”

It took 15 interviews before Iger was offered the CEO job at Disney. At the time, Eisner had held the job for more than 20 years — and for much of that time, he had great success, including reviving Disney’s slumping animation division with hits like “The Little Mermaid” and “The Lion King,” acquiring ABC and ESPN, and becoming something of a celebrity in his own right as host of “The Wonderful World of Disney” TV series.

By the early 2000s, however, Disney had fallen on tough times creatively and commercially and Eisner had lost the confidence of the company’s board, including Roy E. Disney, nephew of founder Walt Disney. During Iger’s interview process, he faced significant pressure to criticize Eisner.

“I refused to do that — I was still working for him and he had been a mentor to me,” Iger said. “Making the case for myself by comparing me to him was beneath me, disrespectful and irrelevant. … I told the board that I can’t do anything about the past, but I’m glad to talk about where I want to take the company and where the company needs to go.”

Why Streaming?

Where the company needs to go next, Iger said, is into direct-to-consumer platforms — namely streaming. According to a recent profile in The Hollywood Reporter, in addition to the Fox deal, Iger has invested $2.6 billion in technology for Disney+ and left $150 million in revenue on the table after ending the studio’s deal to stream its content on Netflix.

Disney+ customers can pay $7 a month to access almost 500 Disney movies and more than 7,500 classic episodes of television, The Hollywood Reporter story noted. Disney+ will also be home to original series that expand the worlds of Marvel and Star Wars, along with a live-action “Lady and the Tramp” reboot and a series spin-off of the popular “High School Musical” TV movies.

“When I got my job … I saw a world where technology has enabled storytelling to proliferate much more and there is much more consumer choice,” Iger said. “Quality and brands matter more than ever. That essentially means don’t let the economy get in the way of making something great, don’t let time get in the way of making something great. Don’t be limited by the amount of time it takes or the amount of money. Greatness is a necessity and an imperative.”

As the service was poised to launch a few weeks ago, Disney stock gained 5% as it announced fourth-quarter earnings that were in line with Wall Street’s expectations, including a 34% increase in revenue to $19.1 billion.

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Disney+ faces tough competition in the streaming space from current leader Netflix, along with new entrants Apple+, HBO Max and Peacock, all of which are expected to roll out in the next year. (As part of the Fox deal, Disney became the full owner of Hulu, which was previously a joint venture between Disney, NBCUniversal and 21st Century Fox.)

Disney is projecting between 60 million and 90 million subscribers to its streaming service by 2024 — by comparison, Hulu reported 28 million subscribers last spring and Netflix reported 60.6 million subscribers in the US and 97.7 million internationally earlier this month.

The acquisition of Pixar, Marvel, Lucasfilm, National Geographic and other household names are key to the future success of Disney+, Iger told the audience at Wharton.

“Consumers have a habit of going right to brands that you know because that brand has values. It creates almost a chemical reaction inside you if I say Nike, or Apple or Mercedes Benz or Pixar or Star Wars,” Iger said. “There’s a comfort level because you know you’re going to be buying something that you know and trust.”

The existence of such a large library of existing content, plus those brand names, are why Disney is hoping its streaming service will be a different kind of value proposition to subscribers who are already being inundated with streaming options.

“As we see it, we’re not competing as directly because of the brand proposition of the service,” Iger noted. “That’s one reason we’re doing it, and that’s one reason we’re confident about it. From a consumer perspective, it’s a very, very different product than what you’re buying from Netflix and Amazon and what you’ll buy from Apple.”

Segmentation and the Creative Process

While many observers see Disney+ as a slam dunk for families with children or dedicated fans of Star Wars or Marvel’s Avengers, some wonder whether Disney+ will have enough content to attract other key demographics. On the earnings call, Iger said Disney+ had a successful test run in the Netherlands and that the demographics of people using the service was broader than expected.

During his talk at Wharton, Iger said the company’s acquisition strategy in recent years makes it easy to offer content for a variety of different audiences, even if it isn’t overtly branded as Disney content.

“FX is one of the networks we bought from 21st Century Fox and it’s known for edgier programming,” Iger said. “We have no problem owning that because we didn’t think the edginess put into the programming was gratuitous; we thought it had a purpose in terms of the storytelling.”

However, consumers shouldn’t expect to see FX shows like “American Horror Story” or “The Americans” streaming on Disney+, Iger said. “Disney+ will be Marvel, Pixar, Star Wars, Disney and National Geographic,” he said. “It’s not FX, not the other Fox brands, not [Fox] Searchlight [movies]. We’ll deliver those separately to the consumer.”

During Disney’s earnings call, Iger said FX programming will have a larger presence on Hulu going forward, including current and former shows and original content created exclusively for the streaming service.

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Like his predecessor, Iger is also credited with reigniting Disney’s animation division, which had once again fallen on tough times at the end Eisner’s tenure. Fixing a souring relationship with, and then acquiring, Pixar was a major part of that strategy, Iger said, but equally important was giving creative power back to directors.

“We turned what had become a producer’s medium back into a director’s medium, where the stories we’re telling typically emanate from directors’ hearts and minds,” he said. “We ask people to tell us what [resources] do you need to make it great: how much time, how much money do you need, and if we really believe in you and your idea we’re going to give you the support to execute it.”

While Iger still has to pay a lot of attention to Disney’s bottom line, he noted that no one has ever complained about a creatively and commercially successful movie or television show costing too much money or coming out later than it was expected.

And what if the endeavor is ultimately a failure? “Failure in creativity is inevitable; there are no guarantees, it doesn’t reduce to a math or a science. You can believe in the creator, believe in the idea, believe in the executive, but you don’t know 100% whether something will succeed,” he said. “You have to figure out how to process that; you don’t want to wallow in failure. You have to say this is a business and move on.”

Using His Voice

Iger said he’s careful to use a targeted approach to giving input on creative projects – as CEO, he sees his role as weighing in on the big issues, like a story’s pacing or clarity, rather than smaller details.

He takes a similar approach to deciding when and how to use the power that comes with being in his position. For example, director Martin Scorsese was recently in the news for making critical comments about the Marvel movies, telling Empire magazine that they aren’t “cinema.”

Rather than debating Scorsese publicly, Iger — a big fan of the director who counts “Raging Bull” as one of his all-time favorite movies – instead sent a note via Scorsese’s producing partner and manager, complimenting the director’s new film, “The Irishman,” but also noting that the team in front of and behind the camera of the Marvel movies, “are putting their heart and soul into them creatively and really believe in what they’re doing. When a guy like Martin Scorsese criticizes them, that hurts. I have no idea what his motivation was, but on their behalf, I felt I needed to say what he said was hurtful.”

Although Iger doesn’t see himself as much different than the 20-something PA who started at ABC making $150 a week, he acknowledged that “the power of my voice is much greater than it ever was and sometimes I expect it to be. It affects my interpersonal relationships with the people who work with me, creative people and even the people I interact with in my personal life. … Because of that, I’m more aware of my voice and the effect it can have on people. I’m much more careful of how I use it, when I say something, what I say or, especially, how I say it.”

Iger has also been clear that his time at Disney is nearing its end — he plans to step down as CEO in 2021.

“I have a great job – who wouldn’t want to run Disney? It’s a lot of fun and no two days are the same. I’m working in a business that touches the world and the impact we have on the world is incredible,” Iger noted. “But I think there’s a time to make a change at the top, and my time is about right. I said I’m leaving in 2021, and I’m leaving in 2021.”

*[This article was originally published by Knowledge@Wharton, a partner institution of Fair Observer.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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