Disney to shave $5.5 billion in costs, impacting 7,000 jobs

Bob Iger has made a pronounced return to the helm of Disney, unveiling a major corporate restructure and a $5.5 billion cost-cutting exercise that will impact 7,000 jobs during his first quarterly update since being reinstated as CEO.

Disney’s results for the last three months of 2022 exceeded analyst expectations, with revenue up 8% to $23.5 billion and net income up 11% to $1.28 billion compared to a year prior.

The company’s performance was lifted by its Parks, Experiences and Products division, which saw revenue jump 21% to $8.7 billion and operating profit climb 25% to $3 billion.

But Disney’s media and entertainment division posted a loss of $10 million and a small 1% lift in revenue to $14.8 billion. It was dragged down by a $1.1 billion loss from its streaming businesses Disney+, Hulu and ESPN+. The streaming losses tempered from the $1.5 billion loss in the prior quarter, but were significantly larger than a year prior.

Disney said the results reflected higher programming and production costs and increased technology costs for Disney+, as well as a decrease in advertising revenue for Hulu.

Disney’s streaming services drew $897 million in advertising revenue in the quarter, down by 8.5% from a year prior. Advertising revenues peaked at $1 billion in quarter ended Jul. 2.

Ads were introduced to Disney+ in December. Chief financial officer Christine McCarthy said that the company was “pleased” with the initial reaction during a call with investors on Wednesday, Feb. 8, but added that the ad tier is not expected to have a “meaningful financial impact” until later this year.

Advertisers may be concerned to learn that Disney+ lost subscribers for the first time since launch. The service counted 161.8 million subscribers as of December 31, down 2.4 million from the prior quarter.

Disney held its third annual Tech & Data Showcase two weeks ago — one month sooner than last year’s — where it demoed updates to its in-house ad tech capabilities, including expanding Hulu’s ad server to Disney+.

Price hikes helped boost subscription revenues across Disney’s streaming services by 17.8% to $4.2 billion.

Reorganization and cost-cutting

Iger’s reorganization of the company — which comes just two months after his return as CEO following the ousting of his predecessor Bob Chapek — is designed in part to address Disney’s streaming losses.

In a statement, Iger said the restructuring would “lead to sustained growth and profitability for our streaming businesses, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.” 

The reorganization combines Disney’s production and distribution entities under one division called Disney Entertainment, which will also house most of its media channels and streaming assets. In another change, ESPN has been separated into its own division. Parks, Experiences and Products remains the third division.

Iger said during the earnings call the new structure is designed to “empower” creative leaders by making them more accountable for how their content performs financially.

“Our former structure severed that link and must be restored,” he said.

Iger said the decision to separate ESPN should not be interpreted as a precursor for a sale.

“The brand of ESPN is very healthy, and the programming of ESPN is very healthy. We just have to figure out how to monetize it in a continuing, disrupting world. That’s it. But we’re not engaged in any conversations right now or considering a spinoff of ESPN,” he said.

The new, simplified structure forms part of Disney’s plans to cut $5.5 billion in costs, which will include shaving $3 billion from content, excluding sports.

The company said it is eliminating 7,000 jobs, equivalent to approximately 3% of the 220,0000 people it employed as of Oct. 1.

Disney is engaged in a proxy fight with activist investor Nelson Peltz and his firm Trian Management.