Disney Announces Major Restructuring to Focus on Streaming Business

By Mariliana Fotopoulou Tuesday, October 13, 2020

The Walt Disney Company has announced major plans to reorganize its media and entertainment units in an effort to put more focus on the streaming business. The company plans to centralize its media operations into a single unit that will take care of content distribution, ad sales, and its streaming platform Disney+ in an attempt to speed up its direct-to-consumer (DTC) plan.

A Major Reorganization Announced

Shares of Disney (DIS) climbed over 5% in after-hours trading after Bob Chapek, Chief Executive of Disney, announced new plans. The restructuring decision came after the coronavirus pandemic battered Disney’s theatre business, and as a result, an increased number of customers opted for its streaming services.

The company welcomed around 100 million paid subscribers since August, more than half of whom use Disney+.

“I would not characterize it as a response to COVID. Would say COVID accelerated the rate at which we made this transition, but this transition was going to happen anyway,” said Chapek.

“We are tilting the scale pretty dramatically [toward streaming],” Chapek said and pointed out that Disney is looking for all investments, including dividends, as it’s looking to ramp up its investments in new content.

He added that the company’s board of directors would decide the matter of Disney’s dividend payouts. Last week, American investor and hedge fund manager Dan Loeb asked Chapek to halt Disney’s $3 billion dividends and redirect the capital toward new streaming content.

Loeb is the CEO of Third Point Capital, a New York-based asset management firm, which is also one of Disney’s largest stakeholders that invested again this year in the company to back its repositioning around Disney+.

“We are pleased to see that Disney is focused on the same opportunity that makes us such enthusiastic shareholders: investing heavily in the DTC business, positioning Disney to thrive in the next era of entertainment,” Loeb said.

Kareem Daniel Promoted

The revamp could bring some layoffs, but not on the same scale it happened at Disney’s parks unit last month, Chapek said. The company dismissed about 28,000 employees after it became obvious that its theme parks in California won’t open any time soon.

In the course of the restructuring process, Disney has promoted Kareem Daniel to the chief of the media and entertainment distribution group. Before this, Daniel was the president of consumer products, games, and publishing.

Daniel and his team will make sure Disney’s streaming services bring profit, as the mass media company continues to pour heavy investments in its streaming business. He will control all of Disney’s streaming services, national television networks, as well as all content distribution, sales, and advertising.

The company is becoming increasingly dependent on Disney+ as cinema theatres failed to recuperate after being devastated following the coronavirus outbreak. Ticket sales have been especially low in national theatres since their reopening in August.

Disney postponed several of its major movie releases in recent months, including Marvel’s “Black Widow” and Pixar’s “Soul,” which are expected to be released in December on Disney+.

Disney is still expected to provide information about the performance “Mulan,” which Disney lifted from movie theaters and sold on Disney+ for $30. Disney is set to announce more details about its sales performance in the next earnings report in November.

″[Consumers] are going to lead us,” Chapek told CNBC.” “Right now they are voting with their pocketbooks, and they are voting very heavily toward Disney+. We want to make sure that we are going the way the consumers want us to go.”

“Given the incredible success of Disney+ and our plans to accelerate our direct-to-consumer business, we are strategically positioning our company to more effectively support our growth strategy and increase shareholder value,” he said.

Alan Horn and Alan Bergman will still run Disney’s studios, Peter Rice will remain the chief of the company’s general entertainment group, and James Pitaro will keep running Disney’s sports unit.

The reorganization will take effect immediately, and Disney believes the results of the revamp will be reflected in the first quarter report of fiscal 2021. More details will be known at a virtual investor day on December 10.

Summary

Disney is restructuring its media and entertainment operations as a part of the plan to focus more on its streaming business. The company was already planning the transition, but the coronavirus outbreak, which battered Disney’s theatrical business, has expedited the process.

About the Author


Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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