Disney CEO Chapek To Bleed Disney

By Douglas A. McIntyre Published Nov 12, 7:53AM EST

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Disney CEO Chapek To Bleed Disney — © Gerardo Mora / Getty Images Entertainment via Getty Images

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.
[nativounit]
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.
[wallst_email_signup]
Cramer was right. Chapek should not keep his job for another day.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.