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Disney Layoffs Begin This Week as Bob Iger’s Transformation Plan Takes Shape

Mohit Oberoi

In an internal memo, Disney (NYSE: DIS) CEO Bob Iger said that the company would announce its first round of layoffs this week which are part of the 7,000 job cuts that he announced during the earnings call for the fiscal first quarter of 2023.

The memo said that after this round of layoffs, Disney would announce a second round of job cuts in April which would be followed by the third and final round before the beginning of summer.

The note said, “This week, we begin notifying employees whose positions are impacted by the company’s workforce reductions.”

Disney announces first round of layoffs

During the earnings call, Disney said that is looking to cut costs by around $5.5 billion of which $3 billion would be from content and the remaining from non-content. The layoffs are one of the ways through which the entertainment and media giant intends to cut costs.

In the memo, Iger warned of a tough road ahead and said “For our employees who aren’t impacted, I want to acknowledge that there will no doubt be challenges ahead as we continue building the structures and functions that will enable us to be successful moving forward. I ask for your continued understanding and collaboration during this time.”

DIS eliminates the metaverse business

The Wall Street Journal reported that as part of the job cuts, Disney would eliminate its metaverse business. Several companies like Disney and Nike built their presence on the metaverse, betting on the long-term opportunity.

However, since the business is still in the nascent stage, metaverse operations are currently posting losses. Meta Platforms’ Reality Labs segment which is building the metaverse lost a whopping $13.7 billion last year.

Meta Platforms has also announced two rounds of layoffs

Amid pressure from stockholders, Meta Platforms has announced two rounds of layoffs and has lowered its workforce by almost a quarter, which is the highest among FAANG peers.

Meta Platforms was the worst-performing FAANG stock last year but is outperforming by a wide margin this year as markets seem pleased with the cost cuts and focus on productivity with CEO Mark Zuckerburg touting 2023 as the “year of efficiency.”

That said, the company is still investing in the metaverse business which Zuckerburg sees as the key long-term growth driver.

Bob Iger has been trying to transform Disney

Iger took over as the CEO in November last year after the Disney board unceremoniously fired then-CEO Bob Chapek. Notably, Iger was the company’s CEO before Chapek before he quit in 2020.

Ever since Iger took over he has been trying to turn around the company and reverse some of Chapek’s decisions. Chapek put a lot of focus on Disney’s streaming business which he put at the core of the company’s strategy.

To be sure, under his watch Disney’s streaming subscriber base exploded and after accounting for Hulu and ESPN it now has more streaming subscribers than Netflix.

Iger wants DIS to focus on profitability

However, as the subscriber count swelled, so did the segment’s losses. In last year’s September quarter, Disney’s DTC (direct-to-consumer) segment’s losses hit a record of almost $1.5 billion.

Shortly after that report, Disney’s board replaced Chapek with Iger who has put profitability as the key goal even at the cost of sacrificing some growth.

Disney also withdrew its streaming guidance for the fiscal year 2024 and like Netflix, it would no longer provide forward guidance for subscriber numbers. It is instead focusing on profitability and reiterated that the streaming business would become profitable by the end of the fiscal year 2024.

Iger changed Disney’s reporting segments

Disney would now have three reporting segments. Disney Entertainment, ESPN, and Parks, Experiences & Products. Iger also said that the company would not be spinning off ESPN.

Iger also gave more power to the company’s creative teams. During the earnings call, he said, “I have always believed that the best way to spur great creativity is to make sure the people who are managing the creative processes feel empowered.”

He emphasized that “our new structure is aimed at returning greater authority to our creative leaders and making them accountable for how their content performs financially.” He admitted that the previous structure under his predecessor Bob Chapek “severed that link.”

Iger’s transformation plan would be long drawn

In the employee memo, Iger said, “In tough moments, we must always do what is required to ensure Disney can continue delivering exceptional entertainment to audiences and guests around the world – now, and long into the future.”

Among others, he might need to decide on the company’s stake in Hulu. The company has until 2024 to buy Comcast’s 33% stake in the company. Iger has said that all options related to Hulu are “on the table” and said that the company has the capacity to add more debt if it were to acquire Comcast’s stake.

He has meanwhile clarified that contrary to rumors Disney has no intention of selling ESPN.

Iger has a two-year stint with Disney

Iger also said that the company would approach the board to restore the dividend. During the earnings call for the fiscal first quarter of 2023, Iger stressed, “Now, it’s time for another transformation, one that rationalizes our enviable streaming business and puts it on a path to sustained growth and profitability while also reducing expenses to improve margins and returns and better positioning us to weather future disruption, increased competition, and global economic challenges.”

To be sure, corporate transformations are not easy. Iger meanwhile has two years to implement his plans at Disney and he has emphasized that he does not intend to stay after two years when his contract ends. The tough macroeconomic situation only makes Iger’s job of transforming Disney more complicated.

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Mohit Oberoi

Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA with finance a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.