In his first extensive public comments about the major restructuring implemented in October, Disney CEO Bob Chapek said it has elicited “100% buy-in” from executives at the company. With the new structure in place, he added during a Thursday call to discuss Disney’s fourth-quarter and full-year earnings, it will be “full speed ahead” in terms of feeding more ambitious projects to Disney+ as theaters remain in limbo due to COVID-19.
The sweeping reorganization created a centralized distribution organization led by Kareem Daniel. In the new scheme, Daniel’s distribution group manages a single profit-and-loss statement for all titles and creates budgets and release plans. The idea is to wean film and TV groups away from traditional thinking on how to build profitable slates and instead focus on consistent returns from the creative ideas circulating through the company.
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There is some evident logic to the new setup, dramatically different though it may be, and WarnerMedia and NBCUniversal are also making similar changes to their workforces. Even so, Disney executives and talent have been raising questions privately about the deviation from longtime industry norms — especially at an already fraught time for the company.
“I would suggest that, given everything that’s happening in the world, this is the perfect time to do such a reorganization,” Chapek said. “I am 100% confident that this is going to play out exactly as we intended. It’s going extremely well and despite the disruption in everyone’s roles, I think we have 100% buy-in. I think we have 100% buy-in because we have clarity on accountability, which everyone really likes, and we separated out roles to what people tend to do best.”
In the new world order, the CEO added, “Distribution, who manages the P&L, will set the parameters for the annual and long-term budget framework that is then agreed to on the slate with the content creators. And then the content creators then green-light the individual projects and shepherd the development and production. So, distribution is now able to optimize the commercialization without maybe too much unnecessary regard for legacy distribution platforms. But at the same time, our creatives, who as you know are the best in the world, are really free to do what they do, and that’s make the best content and storytelling possible.”
Although there will be “a lot of collaboration between the two groups,” Chapek said, there will also be “some level of independence in terms of each being what they can be and doing their jobs best.”
Citibank analyst Jason Bazinet asked Chapek if there were any “guardrails” on the revamp in terms of financial impact, so that a decision on distribution on a particular title doesn’t provide a downside surprise to Wall Street. A film like Pixar’s Soul, for example, has a very different impact on the balance sheet when it skips theaters and goes straight to Disney+ (as it is slated to do on Christmas Day). It might boost subscriptions to the streaming service, which could in turn lift the company’s stock price and have other benefits. In the pandemic environment, though, it won’t generate the hundreds of millions of dollars in theatrical and other initial windows that can be readily forecast in conventional forecasting models.
In other words, the Disney bus is driving on a winding mountain road – how can analysts be sure it doesn’t drive off a cliff?
“I think the guardrails are a bit of common sense in terms of managing cash,” Chapek replied. Due to coronavirus, the parks business has an “anchor” on it, he added, so the management team has to be “a little bit more careful” with its operations.
As he and CFO Christine McCarthy did more than a dozen times throughout the call, Chapek said more specifics would be offered during a major investor day event slated for next month.
“When we talk to everybody on December 10, I think you’ll see that we’re going to put a lot of wind in the sales of our Disney+ business and heavily invest in it,” he said. “So, the guardrails are just the only ones that would be the restraints that we face today in terms of cash. Other than that, everything is really full speed forward.”
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