Investment guru Jim Cramer said that Disney CEO Bob Chapek “has to go.” This was immediately after earnings dropped Disney’s stock by 13% to a 52-week low. Within hours, Chapek announced plans for cost cuts, including layoffs. He will balance Disney’s profitability and his job on the backs of the employees who will be fired. Additionally, there was no mention he would take a pay cut to atone for his mistakes.
The company’s losing battle in the streaming business is at the core of the investor rage against Disney and Chapek. Disney+, the company’s leading streaming service, added 12.1 million subscribers in the quarter, at the cost of a $1.47 billion loss. This took the Disney+ total to 162.2 million. Chapek also said that the subscription growth would slow.
Chapek has assumed the Disney film library, including Pixar, Marvel, Star Wars, and legacy films, would be enough to draw millions of subscribers. This worked for several quarters. However, Disney began to run into the buzzsaw of Netflix, Amazon Prime, HBO Max, and at least another dozen large streaming services. This group of competitors was joined by Apple recently.
Disney suffers from the problems of almost every company in the streaming sector. Most people have a limit on how many services they will pay for each month. Many estimates put the number at three. The battle for these three spaces has been financially ugly enough to take Netflix stock down by as much as half.
Amazon and Apple have an advantage that others cannot surmount. Amazon is the largest e-commerce company in the country. People buy hundreds of millions of items at Amazon.com per year. Amazon Prime is a package. Only a part of it is Prime video. Subscribers get free shipping, early access to popular items, online storage, and a mammoth music service. Amazon also has the revenue and balance sheet to pump new content out without affecting its bottom line.
Apple may have the largest advantages of streaming services. Its revenue and balance sheet are unmatched by any company in America. That allows it to produce a huge river of content. Apple also has the built-in distribution of billions of iPhones, iPad, and Macs. It can bundle its video service with all of these.
Chapek pushed the growth of Disney’s streaming business too fast. In a saturated market, getting those last few million subscribers becomes extremely expensive.
To add insult to the injury of employees who will be fired, Disney’s board gave Chapek a three-year contract extension in June. Undoubtedly, he will make tens of millions of dollars over that period.
Cramer was right. Chapek should not keep his job for another day.
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