Disney sent a shock wave through the media industry yesterday upon stock market closing, announcing the immediate shift of its longtime CEO Bob Iger to an executive chairman role. Iger said he will leave the company at the end of his current contract on December 31, 2021 and use his remaining time overseeing creative decision-making on the media side. Bob Chapek, previously head of Disney’s parks, experiences and products division, is the company’s new CEO.
Here’s what TechCrunch readers need to know about this story:
Context on Iger: As Disney’s leader since 2005, Iger has been widely viewed as the most powerful person in Hollywood, and oversaw Disney’s fruitful acquisition of major IP franchises (Pixar, Marvel, Lucasfilm), ongoing expansion of parks & hospitality and major push into direct-to-consumer video streaming (Hulu, BAMTech, ESPN+, Disney+).
He had agreed to stay on as CEO through 2021 to oversee the acquisition and integration of 21st Century Fox (for $71 billion). Disney’s dominance in the film industry has been confirmed by multiple years of record-setting box office totals, including nine films in 2019 grossing more than $1 billion in ticket sales.
In a statement, Iger says the successful launch of Disney+ — it has added 28 million subscribers since its launch on November 12 — made this the right time for him to step down.
The Market Timing: It looks like a sudden, erratic decision rather than a thoughtful transition of leadership. A $231 billion public company doesn’t normally change its leadership with a short statement and a 22-minute investor call that was arranged with 30-minutes notice.
Succession is normally a carefully rolled out process where there’s an ongoing campaign of announcing the designated successor, promoting them to investors and employees, highlighting the strength and unity of the overall executive team (including those candidates not selected for CEO), featuring the successor on the next quarterly earnings call and then handing off responsibilities. Disney provided none of that advanced notice, and it just had an earnings call on February 4.
The board also said it doesn’t yet have a successor ready to be named to Chapek’s prior role, despite the urgency the resorts and cruises businesses face with coronavirus — Disney’s Shanghai and Hong Kong parks are both closed in response — and the fact it recently terminated the head of Western parks and assigned the head of every park to report to Chapek individually.
As a rule of thumb, you also don’t drop a CEO change announcement when the market is down and facing volatility from something like coronavirus. Investors don’t like surprises, and this is a massive surprise at a time when they are distracted by other pressing issues in the market. Disney’s stock was down a few points in immediate after-hours following the news. Volatile stocks trade at a discount.
U.S. Politics: In the past, Iger has only expressed one post-Disney career ambition: running for president of the United States in 2020. His exploration of a candidacy was widely reported back in 2017 before the Fox acquisition.
As recently as October, there were press reports that Oprah Winfrey and other entertainment VIPs were still lobbying Iger to consider entering the race but, even though he explained how he would position himself in the race, he reaffirmed he had no plans to do so. There’s no new evidence to suggest this sudden transition marks his move into politics — and it would be too late to get on the ballot in most states for the Democratic primary anyway — but one does wonder what would rapidly accelerate his stepping down as CEO such that it was handled this way.
The CEO not Chosen: The two top candidates to replace Iger have been Chapek and Kevin Mayer, chairman of the company’s direct-to-consumer and international division.
If Disney’s board is primarily focused on innovation and positioning Disney in an ever-changing global media market, Kevin Mayer would have been the more obvious choice. Serving as chief strategy officer before his current role, Mayer was the M&A chief who spearheaded the conglomerate’s enormously successful acquisition strategy. In the March 2018 reorganization of the company, he took charge of Disney’s expansion into streaming (Hulu, ESPN+, Disney+) and its international content expansion — the most important role for shaping Disney’s future based on Iger’s publicly stated vision.
Iger has been promoting direct-to-consumer streaming and international growth to investors as the central focus of Disney’s future. He has been pushing Wall Street to start valuing Disney more like Netflix than a traditional TV, film and parks business. Yet he didn’t pick the guy who has been most central in crafting the future he has been pitching.
The New CEO: Bob Chapek’s long career at Disney has focused on theme parks, hospitality, consumer products (merchandise) and home video film distribution, with highlights like launching the Shanghai Disney Resort and doubling the size of Disney’s cruise line. To his credit, his experience is also in consumer-facing businesses, even if they weren’t internet-based or a subscription model.
His division has been driving earnings growth for Disney, including 11% year-over-year growth in operating income in 2019 (comprising 45% of Disney’s operating income). In 2018, equity analyst Michael Nathanson estimated Disney would spend $24 billion over the subsequent five years on expansions to its parks, hotels and cruise lines. That’s more than the company spent on acquiring Pixar, Lucasfilm and Marvel, combined.
By comparison, the launch of a streaming video service has been a giant upfront investment (losing about $2 billion per year initially) in the hopes of long-term profits. In a cord-cutting era where there’s a definitive shift from broadcast TV and cinema attendance (which collectively constitute the majority of company earnings) to video streaming services, the selection of Chapek looks nonetheless like a conservative decision, emphasizing growth of Disney’s brick-and-mortar business lines and an assumption that the massive transition from traditional media to digital media can be learned on the job.
The Dilemma: Like his predecessor, Iger has a history of pushing out potential successors and exercising control over the terms of his departure and the naming of his successor. The fact that he is remaining in an executive chairman role suggests the sudden news was architected as his own strategy and not the result of a scandal brewing under the surface that forced him to step down.
Iger says that as executive chairman he will continue to oversee creative decision-making in the media divisions. It’s an odd role. On one hand, it’s perhaps a responsible move to stay involved and educate Chapek on the creative side of the business before he steps down. On the other hand, it only emphasizes the idea that Chapek is unprepared to take on leadership of the overall business — why not put him in a COO role, like Iger once held, as a transition? — and that current creative executives aren’t ready to step up to greater autonomy.
Executive Search: The past drama of Disney corporate history suggests that the one who loses the succession competition soon departs the company. Mayer is central to Disney’s media strategy, however. He will now be an eagerly sought-after CEO candidate for other large companies across the media and technology sectors, but there aren’t many CEO jobs that could compare in scope or compensation to that of Disney, and they don’t become available often. As one film executive emphasized to me yesterday, a new compensation package to keep Mayer leading Disney’s digital expansion — perhaps with added title and responsibilities — could very well be more lucrative than any outside job offer.