Disney’s CEO drama explained, with Julia Alexander

Today, we need to talk about Bob. Two Bobs, actually: Bob Iger, the former and now current CEO of Disney, and Bob Chapek, the man Iger handpicked as his replacement, who flamed out and was fired by the board, and then, on November 20th, was replaced by Bob Iger. Bobs, man.

The heart of this whole thing is total Decoder bait. It’s a story about how to structure a company like Disney. Then you add in the complexity of the shift to streaming, the future of TV and movies generally, and the gigantic reputation of a character like Bob Iger, who many people think could plausibly run for president. There’s just a lot going on here.

Whenever I need to talk Disney, media, and Bobs, I call one person: Julia Alexander, director of strategy at Parrot Analytics and a former reporter at The Verge. Julia pays a lot of attention to the streaming giants, she’s sourced inside all the companies battling for our attention, and she has a lot to say about the Bobs.

Okay, Julia Alexander. Here we go.

Julia Alexander is the director of strategy at Parrot Analytics and also one of my very favorite Verge expats. Welcome back to Decoder.

Thank you for having me.

You’re here because whenever there’s a situation at Disney, you are the person I call to understand what is happening in the minds of the Bobs. And there has been quite a lot going on with the Bobs at Disney lately. On November 20th, Disney’s ex-CEO Bob Chapek was let go, in what appears to be a frenetic rush. This dude had a bad earnings call, and he surprised everyone by being a little too casual about losing a bunch of money. 12 days later, he was iced. 

Former CEO Bob Iger — the legendary CEO from 2005 to 2020, who bought Marvel, who bought Fox, who made Disney what it is today — is back now. He was supposed to be running for president, but he’s back. And he said, “I’m going to be back for two years and then I’m going to find a successor for real this time.” What on earth is going on here?

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There are a couple of different things happening at once. If we go back to 2019, before the pandemic and before Bob Iger stepped down, there were some succession talks happening, but the main thing that was happening at Disney was the release of Disney Plus. This is the project that has been labeled as the most important of Bob Iger’s tenure as CEO. 

To your point, this is a guy who oversaw the acquisitions of Marvel, Fox, Lucasfilm, and a bunch of other big things, including Pixar, going back to his days with Steve Jobs. All of this was happening during a very crucial moment of Disney entering the next phase of entertainment, direct-to-consumer technology, and direct-to-consumer relationships. Disney was on the precipice of trying to figure out how to go from being a legacy media company of yesteryear into a legacy media company of tomorrow.

Bob Iger was focusing all of his attention there and the future of what’s going to happen with Disney. So fast forward to 2020, he decided to step down just before the pandemic really took off and he promoted head of parks, Bob Chapek, to CEO. He was a lesser-known executive within the company, but he had this energy about him that was like, “Well, maybe he’ll be good. He’s not exactly an Iger, but he’s not controversial in any way. He’s focused on data, he has experience within the entire company for the most part, and he seems like a guy who might be able to lead this company.” As a result of this, a few key people at Disney left, including Kevin Mayer, who was the head of streaming and who many people thought would be the successor to Bob Iger.

He was the favorite, from what I could tell.

Yeah, I like to refer to him as the prodigal prince. He was the one who kind of had the idea that Disney was going to be a streaming company, which is key to this whole conversation. If Disney’s going to go from being a studio company and a TV company to a streaming company, having him in place was really key from an organizational standpoint. Towards the end of the year, you also see the exit of Alan Horn, whom Iger brought over from Warner Brothers back in [2012], I believe. He’s the guy who ran a bunch of the studios and who understood how to make things work theatrically. He was the go-to creative at the company. So these guys leave and then we have Bob Chapek in place. 

Bob Chapek decides two things. One, he’s going to really lean into streaming as the future because there was this huge moment of acceleration from the pandemic. I know you guys love to talk about acceleration on this podcast. There was this moment of everyone saying, “Wow, consumer behavior is really changing. Let’s lean into it.” So that happens. 

Two, Bob Chapek feels like he needs to prove himself against Bob Iger, so he does a very important thing: he increases the subscriber growth for Wall Street by not just tripling it, but by quadrupling it. Instead of 60 to 90 million subscribers by the end of 2024, as Bob Iger wanted, Bob Chapek says, “We’re going to hit 230 million to 260 million Disney Plus subscribers in the same period.”

Three, Wall Street loses its mind. The things that were pulled forward by the pandemic start to really come through, and then all of a sudden everything that made sense about streaming when Bob Iger was leaning into it no longer made sense by the time that Bob Chapek leaves.

This is a big theme that we are seeing across the media and tech ecosystem right now. The pandemic happens and all of our behaviors shift — we’re watching more stuff at home, we’re ordering more food at home, and we’re shopping more at home. The tech and media industries really believed that these were huge shifts that they could invest in and build on permanently, because why would you ever go back to the theater if you can just stream the movies at home? Why would you ever go to a store if you just buy stuff at home?

Now it seems like that reckoning is coming for everyone. Meta is having layoffs, for really the first time in its history, and Mark Zuckerberg is saying, “Whoops, e-commerce isn’t what I thought it would be. Also, Apple screwed up my business with these privacy changes.” We’re kind of seeing it at Disney too. Bob Chapek made this huge bet on streaming subscribers going up and, at the end of the road, turning those subscribers into revenue and a durable business. It, in fact, is not a durable business. The numbers aren’t going up as fast as he wanted and he has pissed off all the creatives at Disney. 

Is that the big picture? Did he just bet on a change that didn’t come true?

I think you have to go even a little bit further back. The start of this whole story doesn’t necessarily begin with Bob Chapek taking over the streaming business from Bob Iger who had launched it. It really comes into play with Bob Iger looking at Reed Hastings and Ted Sarandos, the co-CEOs at Netflix, and saying, “This is content that we are licensing to Netflix.” It was at a very healthy revenue. Disney was being paid for what they were doing. 

You’ve heard Bob Iger say things in multiple media appearances within his brief retirement like, “We were licensing weapons to third-world countries.” That is kind of how he refers to the idea of this deal with Netflix that he had going on. What happens with Netflix is what happens if we look at that FAANG grouping that Wall Street really loves, which is Facebook, now Meta, Apple, Amazon, Netflix, and Google. Everyone points to Netflix and says, “Look at the subscriber growth and look at the profit that they’re making. How can we get into this?”

They’re not taking a second to realize that a company that operates at that level can say, “Well, we’re going to revolutionize entertainment. There will be no advertisements, none of these big things, and no theatricality because we’re growing every single quarter.” They can only say that from a place of true and absolute monopolization. They can only say it from a place of, “Hey, we’re the only person here and all of our would-be competitors are now our partners.” Then those partners become competitors, including Disney. 

When Wall Street was looking at that in the past, subscriber growth was all that mattered. It was like, “Cool, you’re growing, you’re growing, you’re growing.” So Disney and all these other companies were saying, “Well, look, people are super into streaming. We think that’s where it’s going to go.” 

So fast forward to where we are now, they’re not wrong. That is where the industry is headed. It’s not like people are going to turn back to cable and linear anytime soon. So Disney and the other streamers say, “We’re going to really double down on this.”

They looked at a data pool that was just not a great data pool to make permanent decisions on.

The issue that happened was that they looked at a data pool that I don’t want to say was tampered with, but it was just not a great data pool to make permanent decisions on. When we look at the data of the last two years, it is based on unprecedented events like the pandemic, which created behavior in response to it. This is all happening at a very fast moment, but it is not necessarily permanent. 

A great example of this being theatricality. People stopped going to theaters when there was a pandemic. That makes sense. Now people are starting to go back to theaters because the pandemic is “slowing down.” That also makes sense. So what happens is you have a guy who quadrupled his guidance to Wall Street and then each quarter said, “No, we’re sticking by our numbers. We’re not going to do anything just to make you think that we’re not going to hit those numbers.”

So he has to increase prices to bring up the revenue to cover the cost of the content that he’s investing in to make sure that those numbers are being hit. He has to bring in an advertising tier to try and expand the total addressable market to bring consumers in. He has to do all these different things that Iger would not have done in order to hit this goal that, as we stand right now, is adding between 8 to 10 million subscribers per quarter over the next eight quarters. This creates a moment of excess spending on content to reach those goals, at the sacrifice of subscriber revenue and at a time when Wall Street is saying, “Okay, we no longer care about subscriber growth because we’re seeing what’s happening with all the other streaming services. Now we want to know if you’re profitable or if you’re going to be profitable. What is your revenue?” That is where Bob Chapek as a leader could not instill confidence in investors in the Street, whereas Bob Iger may have.

I want to get to how Bob Iger is going to instill confidence in his investors that he’s going to return Disney to a path of real profitability. I think the changes he might have to make to do that are also pretty big and might mirror some of the stuff Chapek would do. We will come back to that in a minute. I just want to focus on the numbers here right now. The initial guidance that Bob Iger gave to Wall Street was 60 to 90 million subscribers by 2024. Then Bob Chapek took over as CEO and upped it by a huge number. He went from 60 to 90 million to 230 to 260 million subscribers by 2024. So there was this massive increase that was more than double the previous guidance. 

At the same time Netflix is saying, “Stop looking at our subscriber numbers, start looking at our profit.” That is a big shift. It seems like Netflix realized Disney was going to play its game, so they decided to play a different game.

It’s two-pronged. If you remember, Nilay, a few years ago, the biggest criticism that Netflix got from reporters and analysts was that they didn’t know how shows and movies were performing because they didn’t release numbers. Netflix’s answer to this was to finally say, “Okay, we’re going to publish our top 10. Every single week, here are our top 10 movies and TV shows in English-speaking and non-English-speaking countries,” that was also a very key decision, “globally and here are the hours viewed.” 

The only reason they did it was because they know they’re the only company that can boast those types of hours. Now there’s pressure on Disney, HBO Max, Peacock, Paramount Plus, and Amazon Prime Video to release those similar numbers, knowing that they are never going to reach the Netflix numbers.  They’re never going to do it, so it makes Netflix look good and they get better press out of it. Same as the reason that they’re doing it with non-English-speaking titles. They get to say, “Look, we have a global audience.” No one else can say that at that level at this point in time. That’s part of it. 

The second thing is, if you are talking about changing your guidance for subscribers, a lot of former executives at Disney inside and outside the room were saying, “I don’t understand why you would triple or quadruple that count based on data that we know is not necessarily going to hold. We know that this is accelerated data. We know that we’re not going to continuously add 15 million subscribers every single quarter.” 

Eventually two things are going to happen. One, you’re going to hit saturation in certain countries like the United States and Canada, which is kind of the key market that we’re seeing saturation in. Two, you’re going to run out of countries to launch in.This is the issue that we don’t really talk about enough with earnings when we compare these companies. Netflix no longer has countries to launch in. They don’t have an easy 2 or 3 million people to say, “Yes, we’re going to be there and then you can come on.” Disney still does, but it’s running out of its room. 

All these things combined are part of the reason that Bob Chapek doesn’t make a great leader in my opinion, and this is why he loses some of the confidence from the board. He keeps on pushing into this stubbornness instead of just saying, “We’re going to pivot our strategy and try to determine how we can lower costs, increase revenue so we can cover our overhead, and really figure out a way to expand in years to come and make this sustainable.” Instead he keeps saying, “We’re going to really hit these numbers. That’s our whole goal.” You have the chief financial officer, Christine McCarthy, and others saying, “I don’t know if this is necessarily the best-case scenario,” as has been reported by publications like The Wall Street Journal and Bloomberg. It’s not necessarily what they’re going to do. 

The other thing to point out about Disney and Netflix is that it’s almost like comparing apples to kumquats. Netflix gets to say, “We’re no longer going to give guidance on subscriber growth because we’re focusing on revenue.” Again, like the top 10, they’re the only company that can because they are the only profitable streaming service. They can say, “Yeah, we’re going to focus on revenue. It’s only going to increase with our ad share because we’re charging $60 CPMs. We’re in a really great position and we have a huge base. So we’re going to focus on that.”

That makes the Street then ask everyone else, “Well, what’s your revenue?” All these other companies are still focusing on catching up to Netflix’s subscribers. They’re spending more than they are making on these streaming services for the most part, and now Netflix is pressuring these companies to ask, “Yeah, but what is your revenue?” That is what they’re telling the Street, and Disney under Chapek was not likely to address that very well. Iger is much more in tune with understanding what the Street wants and how to be not just a great leader as a businessperson, but also as a politician and a figurehead in many ways. He can really navigate that anxiety and that stress in a better way than Chapek could have.

How many subscribers does Disney Plus have right now?

Just under 165 million.

And Netflix has 223 million. That’s a pretty significant gap, but as you pointed out, Netflix is out of countries to launch in. They’re out of people. There are only 300 million people in the United States. There are 8 billion people in the world though. It seems like there are a lot more people they could go address, but they would have to become a very different kind of company or service that has maybe never existed before. A global media company at that scale has never existed before. Is this the cap, 250 to 300 million people?

Well, the first thing on the Disney number that we have to address is that although it is global, they do triple-count subscriptions in the United States. That means if you sign up for the Disney bundle, you are then counted as three separate subscribers to Disney Plus, Hulu, and ESPN Plus. Even if you never use Disney Plus or Hulu, you are still counted as a subscriber to those streaming services. If we assume that based on last earnings and based on reporting that the Disney bundle makes up 40 percent of the subscriber base in the United States, that is a significant number that is being triple-counted. So take that into account. That’s one issue that we have to put big asterisks over.

The question about capping is one that comes up a lot. There were a lot of analysts back in the day who thought that Netflix could reach 100 million domestically basically by this time. I think in the United States they have about 73 million subscribers. My estimate is they can cap at probably around 90 million over the next five years. This doesn’t mean that it can’t expand, it just means that linear has declined slower, ironically, than a lot of people anticipated. The linear business is still healthy and people are still holding onto it. Netflix priced at $15.50 is on the expensive side now, so you’re losing customers who might come back with the new advertising tier, as well as new customers in general who come on with an advertising tier. 

There is also the type of content that they’re creating. Netflix likes to think about taste clusters. To differentiate that for people who aren’t aware, an audience demographic is like, people between 18 to 49 who watch this one thing. A taste cluster is an 80-year-old in Germany and a 17-year-old in Florida who watch the same thing. That is a taste cluster. Netflix will appeal to thousands of different taste clusters to try and find different content that works.

Netflix’s strategy really works with certain taste clusters, not others, so they’re trying to figure out how to expand there. They are trying to figure out how to decrease the amount of content spending by focusing on international content to bring domestically. Disney is still trying to figure out how to get to 73 million subscribers domestically, and they’re sitting at about 44 to 45 million subscribers right now. That’s still a huge gap that they have to figure out. 

The issue with Disney — and this is where I think Iger and Chapek are going to split, although not as far as people may have thought — is that they have to expand beyond Star Wars and Marvel. It’s not that people have run out of interest in those things, but you have captured that audience. People who are interested in Marvel, Star Wars, or princesses already have Disney Plus. Families already have Disney Plus. So Chapek’s solution to this was potentially bringing in more R-rated content, stuff like horror movies. It’s content that people were not associating with Disney Plus, but it has worked. In July 2020, when they brought Hamilton over, it led to a huge bump in subscribers for Disney Plus. More specifically, it led to a huge bump in subscribers from non-Disney people, so it made them more valuable.

Any media company refers to customers as high value or low value depending on engagement and retention. If they are low engagement and you manage to engage them, then that’s a high-churn-risk subscriber, and therefore it’s a more valuable product. If you put out a show like Wednesday and it has huge overlap with Stranger Things, that audience is pretty active on Netflix and they are not going to go anywhere. If you put out a new Star Wars show and the Star Wars audience engages, that’s not super valuable. You’re keeping them there but at a pretty high cost. If you put out a Hamilton and it brings in a huge number of subscribers on top of the Star Wars people, now you have a really valuable product. 

The issue with Disney Plus and a bunch of other streaming services is that if you add Hamilton, within 30 days, people who came in for that no longer have anything else to watch, so they dip. This is why they push the bundle more than anything else. The idea is you can go to Hulu afterwards, but without the interoperability with those services, it gets really complicated because you have to get people to open up another app and that’s a whole situation.

They need to find content that’s still Disney-branded safe, but expands beyond what people think of when they think of Disney right now.

The issue that Disney needs to figure out is how to grow their subscriber base to increase that total addressable market (TAM). They need to find content under Iger that relates to the Disney brand, so it’s still Disney-branded safe, but expands beyond what people think of when they think of Disney right now — which is Star Wars and Marvel. I think Iger will go about that with international content and maybe some acquisitions. I think he’ll go about that by finding ways to bring in a new audience that is not necessarily kid-focused or family-focused, but is still brand-safe. Versus Chapek, who I think was really going to lean into what worked on Hulu and what they could bring into Disney Plus?

I want to talk about the apps and the fact that Hulu and Disney Plus seem destined to eventually merge one day. But this is Decoder, so first we have to talk about the thing Chapek did and the thing that Iger is in the process of undoing. He messed with the org chart of Disney.

If I was to point at something that was “the crime that got Bob Chapek fired,” it seems like it would be this. It’s not about over-promising the board a subscriber number. CEOs do that all the time. It’s not about mishandling an earnings call. Again, CEOs do that all the time. It was instituting an org chart reshuffle that everyone hated. The company basically mutinied against him to kick him out because that was the thing that created the lack of confidence. Explain what he did to reorganize Disney.

So this actually goes back to the way Disney worked pre-Iger, when Michael Eisner was CEO.

This is great. This is why you’re on the show.

When Michael Eisner was CEO, he had this strategic committee that sat atop all of these different creative directors who oversaw whatever it was, like ABC or Disney Studios. The strategic committee could determine final say for a lot of different projects. It wasn’t necessarily greenlighting, but from an investment perspective, “Here’s how much money you’re going to get to spend on this thing.” 

When Iger came in, he realized that while this kind of worked for Eisner, it really lowered morale with his big creative directors who were overseeing the things that were making the content, which is the heart of Disney. So Iger gave the P&L to those teams. He gave this ability to take a budget so you could greenlight and control where it was being distributed. He gave control of the budget for stuff back to the creative directors.

Why is this important in an industry like Hollywood? Because decisions were not necessarily made on data, they were made over breakfasts, lunches, and dinners. It was all handshakes and saying, “I know this person, I really like this person, and we’re just going to make a deal.” That often requires making last-minute budgetary decisions like, “I’m going to give you an extra week to do the shoot because you think you’re going to do something great.” “I really believe in this project, so although we don’t necessarily have the budget for it, we’re going to figure out how to do it. We’re going to pick it up.” “I really believe that we need to go 10 percent above budget for this, because we’re competing with HBO for this project and we really want to do it.” Iger gave that ability back to his directors. That includes Dana Walden over at Disney General Entertainment with Disney TV, Kevin Feige at Marvel, and Kathleen Kennedy at Lucasfilm.

As they were moving more into streaming, this is where a lot of things changed. I think this is where Bob Chapek doesn’t necessarily get some credit that he deserves. Iger and Kevin Mayer also were into the idea of changing things up slightly. It wasn’t that they were going to take away that control from the creative directors, but when you looked at Disney Plus, the idea was, you have Kevin Mayer overseeing it and every different vertical would be given slots. The idea was like, “Okay, Marvel, you get four slots. Star Wars, you get three slots. I don’t care what goes there. It can be a movie, it can be a TV show, or it can be an animated special. I don’t care what it is, but you have to fill those slots and that’s how we’re going to figure things out.” The idea was you still give the creative directors control, but some of the distribution changed. Some of it was like, “You have to put some stuff here.” 

By the time that Chapek comes in, he does this very McKinsey-style move where he says, “Okay, first we’re going to reorg everyone. We’re going to put everything under a section called the Disney Media and Entertainment Distribution (DMED), and everyone reports to this guy named Kareem Daniel.” Kareem Daniel had no experience in content, no experience in distribution, and no experience in streaming. He came from Parks and Experiences and he was Chapek’s right-hand guy. All of a sudden you have people who have been controlling their budget, their distribution, their relationships, and everything else they were doing for 15 years, now reporting to a guy who they have maybe never interacted with before. And he is now going to make all these big decisions about where something is going to go.

So people are frustrated. You hear reports, and I talk to people all the time about how they lost out on deals because they couldn’t get an offer back in time. They had to go to Kareem and his team to figure out if that was something they were going to do. They felt they were being treated like little kids and like they were no longer in control of what they were very proud of being able to create at Disney. All of which leads to lower morale, to people being very upset and potentially looking elsewhere, and to misdirects in terms of the content. This is why you hear stories like, “Why did this Pixar movie go to Disney Plus and not go to theaters? Why did this TV show go here and not over there?” That is a DMED situation. Someone is deciding where they’re going to go and how much money they’re going to put into it instead of the actual creative teams.

One of the biggest advantages Iger has over Chapek is that Iger is someone who comes across like the business is supplementary to the art. Chapek is someone who comes across as the art is supplementary to the business. That does not imply that Bob Iger is not good at business. He has clearly proven that. It is not to imply that Bob Chapek does not like movies. It is to suggest that when you are running a Hollywood company, especially Disney which is famous for its parks and kids running up to hug Mickey Mouse, you need to be a guy who comes across as, “Yes, the art is far more important than the business. The business supplements it.” 

The irony in Wall Street really not liking Chapek is that he’s the most Wall Street type of guy. He’s the guy who looks at data and finances and says, “This is how we’re going to cut different things in order to make up for the losses here and whatnot.” But in doing so, he alienated every core executive at Disney and lost the trust of the board and the Street in the process.

I don’t think it was a good idea, but let me make the argument for the DMED restructure. There are only two structures for a company. We talk about them in Decoder all the time. We talked about them with the CEO of Bose just last week. It comes up all the time. 

You can have functional companies where all the functions are centralized under the CEO and they’re expressed out. Apple is the most famous functional company of all time. Or you can have divisional companies, where Marvel is a division of Disney and Lucasfilm is a division of Disney. There is redundancy in those decisions because they have their own accounting and marketing and whatever. But because they are able to make decisions faster, the efficiency overcomes the redundancy. They have their own P&Ls that generate the profits to cover up for the fact that they have these redundant functions inside of each division. That is the general theory.

 If you’re Bob Chapek and Kareem Daniel you would say, “Okay, we are now a consumer company. We sell a product called Disney Plus. Everything should be subservient to that product and we should make decisions with that product in mind. We’re going to centralize our decision-making and the creatives should just worry about the creative. They should not be making deals, they should be making great Star Wars movies. They don’t need to be going out and selling things to other places or be worried about theatrical, because what we make here is Disney Plus.” 

That’s how a tech company would think about it, to some extent. It just seems like that pissed off all the creators. You cannot do that to Hollywood. You need to give them the redundancy and measure them on their success. It seems the central lesson here is that there’s more than one way to make a decision about a company structure.

Yes. Bob Chapek thought there was this situation in play with Iger and some others who had been previously saying, “We won’t take away some of the big decisions, but we need you to create for Disney Plus. We are suggesting that, instead of taking this movie that you might want to take to the theaters, maybe you bring that movie to Disney Plus.” The issue is that instead of propositioning it as, “You get to choose what’s going to go here or there, you just have to reach a quota. You have to at least give us this amount of things and it has to be between one film, one animated thing, or whatever it might be.” Instead, Chapek said, “No, no. We’re going to make those decisions.” What happens is he’s not prepared for the fallout that comes from it.

This is my favorite example to talk to clients about. If you’re looking at your spreadsheet, and you’re just looking at numbers, moving something like a Pixar movie to Disney Plus might make sense. You might say, “Okay, there is value that we’re going to get from new subscribers coming in over a specific time period. We’re saving on marketing and printing costs and taking in between 85 percent and 100 percent of those signups, versus the 60 percent in theaters.” 

That might make sense to you, but then you get pummeled by headlines that are like, “You are devaluing Pixar.” You have all these animators who are like, “Here’s why it’s important that we are in theaters at this time.” You have agents and other creatives who are saying, “Yeah, of course this is the issue. There is a whole reason we put stuff in theater sometimes. Obviously we’re trying to make money, but we sometimes make decisions not just based on finances and revenue.”

That’s really tough for a guy like Bob Chapek who is data-driven. Here’s a great example. Disney, under Chapek, was going to be a streaming company. But Disney is also a parks business. Disney is very much like, “We’re going to make all our money at the parks.” Bob Iger believed that Disney World should be accessible — but trust me, there were moments where Bob Iger raised prices at Disney World. But Bob Iger believed you should be able to go to Disney World at all different types of prices depending on how much you can pay. Is it expensive? Yes. But Bob Iger believed that although the parks were also generating strong revenue, they did something that was an intangible asset. They built love and adoration. They created intimate memories and experiences that were cross-generational. Grandpa, mom, and kid all loved it and they all have these memories together. That really creates a love expression, a brand, for Disney, which helps its revenue decades down the line. It’s going to be fine.

So he wouldn’t do what Chapek did, which is, “Demand for the parks has never been higher, let’s capitalize on it. Let us start selling these different passes so that you can upgrade certain things for a price,” which under Iger was free. “Let’s increase the price of the parks. Let’s increase all these things because there’s demand for it.” What happened? Revenue for parks went way up. It was up 42 percent year-over-year, it did great, but there was all of this sourness within the communities — within the creative community, the fan community, and with the parents who are now like, “This is getting so much more expensive.” That adoration gets dinged. 

The thing I always like to compare it to is when you look at Warner Brothers Discovery. It is the idea of telling Casey Bloys, who is now the CEO of HBO and HBO Max, “Hey, we need you to start thinking about unscripted because we’re bringing in TLC content.” You can’t do that at HBO. You can’t. It takes 30 years to build up the brand of HBO and have that trust from consumers because they really like it. It takes a year to burn it down, and then they have to try to build that back up again. Disney is in the same position, where it takes all this time and effort to really build that up. Making a couple decisions that are based purely on revenue, because it’s an easy place to build revenue as you’re looking over your balance sheet, takes away from the longer impact.

There are all these decisions that impact the greater culture and content, which then impacts the community and the audience. Chapek didn’t think about that until it was far too late.

I think this is a situation with the org that’s like moving the Imagineers from California to Florida because they got a tax break on it. The Imagineers didn’t want to leave California. Iger is hyper-aware of all of these decisions because he has this really strong emotional intelligence. Chapek doesn’t. When he is doing this reorg, there are all these decisions that impact the greater culture and content, which then impacts the community and the audience, and he doesn’t think about it until it’s far too late.

Would you sum all that up as him being the finance guy to some extent? He was the person in charge of parks. I’m assuming he thought, “I can just get money out of the parks whenever I want and my boss won’t let me do it.” Then he became the boss and he turned the knob to get all the money out of the parks. 

There is a sense that he’s just an operations person, right? He was handed sort of a finished vision of Disney and he said, “Okay, here’s the vision, it’s Disney Plus. I’m going to relentlessly optimize the company for this product,” without realizing that relentlessly optimizing a company like Disney for profit or efficiency kills the magic of the company itself.

Yes, and I would add, there are two areas I think really spell this out. I was talking to a Disney exec about a story that was in The Wall Street Journal yesterday or the day before about how Bob Chapek had brought in McKinsey to kind of look over how he could do this reorg. That’s what really angered creatives.

The angels of death.

The angels of death, yeah. The thing this executive said to me that I thought was interesting was not that he had brought McKinsey in. He said, “We never use McKinsey. We haven’t used McKinsey in 12 years. If we use anyone, it’s BCG, and we don’t even really use them. That doesn’t sound like a huge deal, except it is from a cultural perspective. It’s what we’ve always done and what we have relied on. Part of the reason that we don’t bring in McKinsey and BCG often is because we came from them. We can give you similar ideas of what they would be doing.” 

So for him to bring in McKinsey kind of speaks to this outsider status as this operations guy or this finance guy who’s like, “I’m going to go to the best consultancy group in the world,” who has this very notorious brand, to your point. “We’re going to bring them in and try to fix the creative side of things,” which doesn’t always work. I think that is one issue when you look at it. 

I think we often forget that Bob Iger didn’t really step down, he stepped up. He gave Bob Chapek this title of CEO and then he made himself chairman. He was like, “You’re reporting to me, so I’m still overseeing it.” We also forget that he made himself chief creative officer. Bob Iger was like, “I’m going to oversee creative. We brought in this amazing parks guy to do all the stuff I don’t want to do.” That is effectively what Iger said publicly. “I don’t want to go to earnings calls anymore. I don’t want to be in these meetings. I’m bored of it. I want to go hang out with celebrities and do cool creative stuff.”

Respect. Full respect.

Yeah, huge mood, huge mood. It’s incredible. When you look at Bob Chapek, he’s a great operations guy if you have someone like an Iger. I think this is the greater conversation about Disney as we kind of step into it. Bob Iger is in a position where he has two years, so he says. Bob Iger retiring is kind of like Tom Brady retiring. It’s like Cher’s farewell tour. You’re kind of like, “How many times do we need to do this?”

Julia and I actually text about football every week. Brady’s not having a great season. He should have stayed retired.

We’ll follow up in six months and just do a whole Brady and Iger episode. 

Every executive you ever meet is obsessed with their legacy, and Bob Iger can’t leave that Bob Chapek blemish on it.

So Bob Iger comes back. Every executive you ever meet is obsessed with their legacy, and he can’t leave that blemish on it. He has to course-correct what Chapek had been doing, and he has two years to find his next successor. The issue that we saw when the board was trying to find someone who wasn’t Iger is there are very few people who can do the job of running Disney. When we look at what the best options are, ironically if we look at Disney years ago, it’s Roy Disney running it alongside Walt Disney. You have an operations guy and the creative guy.

I think the best modern example of this today is Netflix. You have Reed Hastings who is very good at operations and then you have Ted Sarandos who is very good at the creative stuff, and you have them run it side by side. I think with Disney, and Iger specifically, Iger and Chapek made sense. You have a guy who wants to do the operation stuff and you have a guy doing the creative stuff, and they can talk about why something like DMED would not work. If you remove Iger from that situation and give Chapek control over some of the creative stuff, you have an operations guy who brings in McKinsey to make decisions that affect what happens with Frozen. It just doesn’t make much sense.

Let’s talk about what Iger might do now that Chapek and Kareem Daniel are out. He said DMED is going away. You would think the centralized functional structure is going away and he’s going to return power to his studio heads. But he’s still investigating that though. He didn’t come back and say it’s going back to how it was. He came back and said, “Here’s a new committee that will investigate a new structure.” Then people made the normal assumptions you would make, which is that it will look more like it did before. He hasn’t said he is going all the way back. What do you think he’s going to actually do?

Well, I think you just hit the nail on the head. I think there are a lot of people, including Wall Street, who rejoiced at Iger coming back. I think he’s the right choice for CEO at this moment in time for Disney, but it’s not like he’s going to come in and everything is now fixed. From a reorg standpoint, he will get rid of DMED, Kareem Daniel is out, and he will give some power back to his creatives. 

I do think we get back to what he and Mayer kind of started doing in 2019, which is that you have full control over where things are going, but you have to focus on Disney Plus from a revenue standpoint. “We have to look really carefully at this. If we think this title is at a higher risk of losing money” — like a Strange World, which just came out and is going to lose a lot of money for Disney — “should that movie have gone to Disney Plus? If so, could we have made it for a little bit cheaper? How could we ensure that it has the best chance that it can on Disney Plus versus a type of movie that we know for sure is going to work for a theatrical audience, even when theatrical attendance is still down about 30 percent to 35 percent compared to 2019?” 

All these things are happening. I think those decisions are going to get a lot more tight even under Iger because they have to. They can’t step back from Disney Plus. They’re in a really great position, and Disney Plus is not floundering. It’s an expensive thing, but it’s not floundering. You have to kind of corral your creative directors to think about this mothership product while they’re thinking of other stuff. So while they’ll go back to what it kind of looked like, I do think the belt will tighten more than some people might be expecting. 

But, again, I think Iger is someone who can communicate this. I think he can make the creatives feel like they’re not losing something, even if they are. I think he can make it seem like, “Hey, this is something that we have to do to make sure that we as a business keep going as our investors and our shareholders are looking at us.” I think it looks similar to what it looked like in 2019, but with a centralized focus on Disney Plus that doesn’t take things away from creatives. Quota is a terrible word, but I think it’s like, “Hey, you have to provide this amount of things in order for us to make sure that Disney Plus is chugging along.”

One of the themes we come back to over and over again on Decoder when we talk about creative companies is that your distribution funnel has a direct impact on what you make. We see this in music, movies, and everything else. It is maybe the biggest influence on the creative itself. I’ll give you the example of YouTube because you reported for years on YouTube at The Verge. The way the YouTube algorithm works had a direct effect on what YouTubers woke up and did every day. That’s just distribution controlling the creatives. 

Here you just said something really interesting, which is if you think it’s not going to do well, maybe put it on Disney Plus and make it for cheaper. That seems like the streaming trap. If I look at the quality of a Netflix show, yes, the expensive ones are expensive, but the middle ones just look like Netflix shows. I feel like I should disclose that I’m the EP of a Netflix show called The Future Of, which is great and you should watch it on Netflix. You know what I mean. There’s a vibe around a streaming show on a Netflix or a Hulu that isn’t the vibe around a show on HBO and that isn’t the vibe around a big theatrical movie. 

That is just budgetary in its way. “We know people are going to be on their phones when they watch it, so we might as well stretch this out over 12 episodes instead of eight.” That seems like a real force in the streaming world. How does Iger overcome that when he’s like, “Okay, here’s the thing that we make, but I can’t destroy the brand and the quality of the product that we’re known for?”

I mean, this is the difficult line that no one has figured out. For anyone at any company to claim otherwise would be untrue. We look at Netflix only because they have been doing this the longest and have been doing it with the most investment. 

There are a ton of these movies made for Netflix that are really cheap and do extremely well for them. That is how they subsidize big plays.

If we look at The Gray Man, which is that $200 million Russo brothers movie that came out, that movie is subsidized. It is never going to make on Netflix what it should if it was in theaters. That movie is subsidized by a bunch of $3 million to $8 million movies, sometimes cheaper, that Netflix puts out. And they have huge audiences. Something like Purple Hearts, which is a movie about a woman who falls in love with a Marine, did insanely well for Netflix. Even things like Tall Girl or To All the Boys I Loved Before — there are a ton of these movies that get made for Netflix that are really cheap and do extremely well for them. That is how they subsidize these big plays. 

Why are they subsidizing something like The Gray Man? They want franchises. They want to be able to sell Gray Man action figures down the line. They want to be able to do all these things. So they kind of subsidize these big bets. It’s why you get a bunch of different looking things. Then they play on the auteur side because they want awards, which bring in more talent and more subscribers — it is a small amount, but they do bring people in. 

You kind of get where they’re going with this. If you are Disney, a vast majority of movies that you’re making should go to theaters. It’s just designed that way. That said, when you have this Disney Plus platform, what it gives you is the ability to make movies that are not going to perform in theaters, but you still want to make and they can still find value. An example is a Disney movie that came out years ago called Queen of Katwe. This movie Disney put out in theaters didn’t do well, but they kind of knew it wasn’t going to do well. 

I have three different rules for if you should put a movie in theaters to hopefully find an audience. One: do I have to see this right now? That is typically because of spoilers. There’s a conversation happening. Two: does it take advantage of technology that my really good TV and soundbar at home are not going to give me? This is why dramas have faltered in theaters and sci-fi has gone up. Three: do I need to see this with a community? Things like horror movies and even comedies to an extent really take advantage of an audience. 

You have a bunch of movies that are not within that. Typically, they tend to be dramas or rom-coms, things that people still want to make. Those types of movies lead to expanding the total addressable market for streaming services like Disney Plus. A great example of this, that I actually did research on at my company, is West Side Story — and this is going to upset a lot of Stephen Spielberg fans. 

West Side Story is a type of movie that should take advantage of a theater. It’s beautifully shot and it has incredible cinematography, but that movie just did not do well in theaters. It would have been a massive get on Disney Plus because a ton of people would have signed up. Also, musicals tend to have longer shelf lives on streaming services. We don’t know why. That’s just what our data shows. They tend to have stronger value over time than other things. That type of movie released globally around a holiday brings a lot of people. Then you have to have enough content to keep people there. 

So as you’re building things out, there are certain movies where you go, “Maybe we don’t take the risk in theaters.” You have to work with the right creatives who say, “Yes, I totally get where you’re going and I want more people to see my stuff, so I’m cool with that.” You have to figure out, “Okay, will this help us grow this section of our streaming service, which two years from now is going to be really important?” That’s what I mean by the types of movies that Disney makes. It’s not like Disney should take movies that look like garbage and put them on Disney Plus because that’s where they belong. It’s figuring out what movies can work for different audiences that aren’t going to go to theaters. 

A great example of what that looks like is Hocus Pocus 2, which I’ve deemed the perfect streaming movie. It is a type of movie that people are going to watch only on Disney Plus. They’ll sign up for it, they’ll have people come over, especially if you put some pre-roll ads, and you’re going to have a huge engagement on it, which Disney saw. You know it’s going to do well domestically, but that movie was never going to travel well globally. Disney is a global theatrical distribution business, so they’re not going to release it. They’re going to lose money if they put that out globally, so instead they put it on Disney Plus and find an audience.

The Netflix equivalent to this, as my buddy Sunny once said, is the Adam Sandler movies. No one in their right mind would pay to go see those movies in theaters, but they do really well for Netflix and they don’t cost that much to make. That’s what I’m saying. To your point right now, there is absolutely a quality discrepancy. I don’t think it’s a matter of saying, “We need to make a ton of movies for Disney Plus and that’s what we’re going to do, and they’re going to be really bad quality.” It’s looking at movies that you’re already developing, especially if you have Fox and Fox Searchlight, and saying, “Maybe this does better for us on Hulu or Disney Plus than it does in theaters, and we take this as the opportunity to really experiment with it.”

I feel like when I talk to executives on the show, there is an element of clinicalness to these decisions. I ask people how they make decisions, and I ask them how they organize their companies. It feels like a lot of what you’re saying is there are some objectively right answers about how to structure Disney. But at the end of the day, Bob Iger had the touch and Bob Chapek didn’t. They are maybe three clicks apart strategically and organizationally from one another. That’s not very far, but one of them was kind of a blunt instrument and the other one is a grandpa who people think could be the president of the United States. Is that the whole difference?

It’s not that Bob Iger is necessarily the best CEO in the world. What is happening in the industry right now is this period of insane anxiety. I mean, he has said this and I see this with clients that I talk to. People like to compare what’s happening with streaming now to when DVDs and VHS started coming out and how that affected theatricality and linear, and it’s nowhere close to that. From an economic model standpoint of entertainment, streaming coming in as the next focus of where everything’s going is the equivalent to film coming up and being in the stage entertainment industry. “There’s this thing happening and the audiences are going elsewhere. There’s new technology and we don’t know how to support this thing that we’re doing because the economics of everything have changed.”

Now this is something that we haven’t really talked about on the podcast yet, but the other issue with streaming is that you have a lot of companies who are really strong cable and linear businesses who have 20 to 25 to 30 percent profit margins, now going to a business where the profit margins may never reach that and are not going to reach that any time soon. You have a lot of Wall Street investors and shareholders who are concerned. 

On top of a strong business leader, which I think Chapek is — for all of his issues, I don’t think he was a bad operations guy or a bad finance guy —what you need, though, is a CEO who can also be a great figurehead and politician. Who can say, “I get that you’re having this period of anxiety. I get that this is what’s happening. Here’s how we’re going to change our strategy to meet some of these concerns that we’re seeing. Here’s why we’re really strong believers in what we’re doing going forward. Here’s how we’re thinking about all these different avenues.” 

Iger does that even without being at the company. Think about Chapek just on his last earnings call, about his performances. The one side of things he did wrong, to your point, as we just talked about, it was the reorg and not knowing how to work with your direct reports. On the other end of the situation though is where you have him leaning into this stubbornness of, “Well, no, my way is right. I had every intention to quadruple our subscriber growth and we’re going to make that happen. I’m going to spend, spend, spend at a time when that’s a huge concern, but don’t worry about it, that’s what everyone’s doing.” 

This is at a time when Netflix is now saying, “Actually, we’re going to show you our revenue because we think that’s what’s important, not subscriber growth.” All of these things make him feel like he’s not a great figurehead and he’s not a great politician. He can’t get people through the economic uncertainty and that’s what you need with Iger. 

To your point, there’s a reason Iger and the board chose Chapek. It’s not like he looked at Chapek and was like, “Oh my god, this came out of nowhere. How could this have happened?” But it’s that little bit of difference that gets a company through a period of uncertainty.

I would just say there’s a long history of these visionary CEOs picking the wrong successor, and it feels like that is a huge part of what happened here. If you’re the visionary CEO, maybe the other visionaries around you are more of a threat than you want to admit. So you end up picking the operations guy who executed your vision and say, “Well, he’ll just continue executing my vision.” Then particularly if you’re Bob Iger, the economy changes and the board calls you in a panic and you’re like, “Yeah, I’ll come back.” That does seem like the pattern of the visionary CEO betting wrong on the operations guy. The exception that proves the rule is Tim Cook, but he is by far the exception to the rule.

Tim Cook also brought in a McKinsey guy and the creatives got very upset about that, famously. But, yes. There have been multiple reports about this, and it’s hard to tell if it’s true or not, but there is this element of, “Was Chapek Bob Iger’s first choice? Or was he just the choice that the board also agreed with?” There is the idea that Iger may have wanted a Kevin Mayer, who is one of the smartest strategic thinkers around, was Iger’s right-hand man in many ways, and was the guy who oversaw all these major acquisitions. But Kevin Mayer had this kind of air about him that the board didn’t know if he would work as a leader. He didn’t have the operational history that would have put him in a good place to be CEO.

You get to a point where maybe your first or second choice, if you’re Bob Iger, are not the choices the board wants. You come to your third choice and say, “Okay, yeah, I like him, but I’m going to stay on as chief creative officer because I think there needs to be a period of helping him out before this might work.” I think that’s more in line with what probably happened. You can’t do your first or second choice, so you get your third choice. You like the guy, you do believe in the guy, but you’re like, “I need to work with him on certain stuff.” By the time you do step down, everything kind of gets thrown into chaos and now you’re watching from the sidelines. Also, you have a huge amount of stock tied up into the company. These things are happening that are really concerning. 

“I think it’s also really hard when you’re a visionary executive to pick someone who you think can do the same thing that you have done.”

I think it’s also really hard when you’re a visionary executive to pick someone who you think can do the same thing that you have done. In many ways, Iger was the opposite of Eisner and is exactly what Disney needed. Just as Cook was the opposite of Jobs, but at the time Apple really needed someone to lead them in that direction. At Disney, I don’t think they needed a Chapek yet. I think they still needed an Iger, and to replace yourself with a mini-you is very difficult if you are exceptionally talented at what you do.

Let’s talk about that for a minute to wrap up. Iger said he is only on for two more years. You have mentioned Kevin Mayer several times in this conversation. A couple days ago, I tried to tell someone else the Kevin Mayer story post-Disney, and I realized it is maybe the most underappreciated, bonkers story in media right now. 

He left Disney. He was the CEO of TikTok. Then Donald Trump said he was going to ban TikTok, and he stopped being the CEO of TikTok. He started a new company, Candle Media, which then acquired Reese Witherspoon’s production company Hello Sunshine. It’s very strange. Is he coming back? Is Iger going to buy Kevin Mayer’s company? Is he going to find someone else? How does he manage this two-year lame duck period where he has promised to appoint a successor?

Does Disney need Candle Media?

Candle Media is Kevin Mayer’s company, by the way.

Yes, I think Disney would like to own CoComelon.

CoComelon is the kid’s brand.

Yes, yes. Thank you.

Just filling in behind you.

I think with Disney, there was a really interesting moment on an earnings call — I think three earnings calls ago — where Bob Chapek said a really impactful statement for me. He said, “We’re really losing out in the preschool space and we’re losing out to Netflix.” I said, “Wow, Disney is the creator of Mickey Mouse, they are losing out in the preschool space?” That’s wild.

The next day he was fired. I just want to point that out.

I think it opened my eyes because I was like, “I guess they’re all losing out to YouTube.” That’s where the kids’ content is and they’re all trying to figure it out. Netflix figured it out by working with Candle Media on CoComelon and then they brought a bunch of that stuff in. Hulu works with them on other stuff.

If you’re Disney, there’s a lot happening, including Reese Witherspoon’s brand. There’s a lot happening across all the different companies like Candle Media, which is backed by Blackstone. They buy production companies and studios, and then they take that content and they sell it to streamers. They’re middlemen. There are a lot of other companies that are doing this, like Chernin Group, which is Peter Chernin’s company. Their idea was to bet on all of these different pieces of entertainment across the board that would really help these streaming services.

If you’re Disney, that’s not a bad acquisition to have in your pocket. But if the goal is, “Okay, we’re going to sell our company to Disney to bring back Tom Staggs and Kevin Mayer — both former prodigal princes up for CEO who didn’t get it, but then started this company together,” they still don’t have the operational experience that the board is going to be looking for. Even being CEO of Candle Media for a few years, which is a startup with very few employees, Kevin Mayer is not going to have the experience in running a company like Disney, which is 18,000 times that size. 

You can ask different people in the industry if they think Kevin Mayer is coming back and you get a 50/50 response. Everyone has their own opinion on stuff. I think if Disney wants to declare itself first and foremost a streaming company that has all these other businesses, then Kevin Mayer is not a bad bet to have as CEO. If Disney wants to be a media company where streaming is a core business, but it is a vertical in the same way that Marvel is a vertical of Disney, then maybe having a guy who is not entirely focused on streaming is your best bet. 

My recommendation would be to have two CEOs. I would have someone who has the streaming stuff really figured out. Someone who understands the technology side of things, who understands — I’m going to say your favorite word on this podcast — the potential metaverse side of things, who understands gaming, and who understands how the direct-to-consumer space with games and building that franchise adoration continues. Then you need a Chapek, an operations guy who understands that but also gets creatives. I think you need both. I think you kind of need your future-forward thinking technologist like Jason Kilar, former CEO of Warner Media. Then you need someone who is a combo Iger-Chapek, who’s good at the operation side of things, who understands and can run a business that size, but who also gets talent. I think that’s what you need to run a company like Disney to make it a future media company of tomorrow.

One, I will point out that Jason Kilar pissed everyone off as CEO of Warner Brothers by going all in on streaming and probably ended his career in that company.

Well, he didn’t partner with someone.

He’s the creative. Two, I would say the obvious choice here is Julia Alexander. I know that you’ve been angling for this job basically the entire time we have known each other. Various Disney board members, if you’re listening to this, you can contact Julia through us. We’ll take a finder’s fee. That’s really what I’m getting at here. 

Julia, it’s amazing to have you on Decoder. I love talking to you every time you come on. Thank you.

Thank you for having me.

Decoder with Nilay Patel /

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