In Disney Shakeup, Cost-Cutters Get Clout in Post-Staggs EraBy
Executives like Chapek, Pitaro, Sherwood promoted recently
Emphasis on restructuring, unearthing new revenue sources
The derailing of Thomas Staggs’s drive to the top job at Walt Disney Co. sheds light on what some say is a culture shift at the entertainment giant, where cost-cutting is in vogue and value is placed on shaking up the business model.
A group of leaders on the rise -- including Bob Chapek, who oversees theme parks; Jimmy Pitaro, in charge of consumer and digital products; and TV networks honcho Ben Sherwood -- have restructured their divisions, fired longtime executives or sought to wring more revenue out of the business. Their strategy is in line with that of Ike Perlmutter, who came to Disney with the Marvel Entertainment acquisition seven years ago and built a reputation for controlling costs.
The change in tone is subtle, and in some cases is being led by managers who have been at the company for many years but have been promoted in the past 14 months. Their rising influence provides context for a number of recent executive changes under the watch of Chief Executive Officer Bob Iger, including the surprise departure of his top lieutenant, Staggs, according to current and former executives.
It also gives investors clues to Disney’s priorities and strategy during a period of contemplation at the company about the future, with no obvious successor to Iger waiting in the wings.
“Staggs is a phenomenal operations guy, but not somebody who is going to be able to remodel Disney’s non-physical assets into a 21st century,” said Porter Bibb, managing partner of the New York-based Mediatech Capital Inc., who has been an investment banker in media for 40 years. “Everything is in flux.”
Since the group of executives hold some of the highest positions at Disney, it’s likely they’ll be considered along with outside candidates in the search for a successor to Iger, 64, whose contract expires in June 2018 unless the board asks him to stay and he accepts. The company has said it is undertaking a wider search now that Staggs is leaving.
Burbank, Calif.-based Disney shocked investors when it announced April 4 that Staggs was departing the company in September. As chief financial officer, the 26-year-company veteran had spearheaded acquisitions, such as the $7 billion purchase of Pixar in 2006. And when running the theme park business for five years, he supervised major expansions such as the $5.5 billion Shanghai Disney Resort scheduled to open in June and a $1 billion upgrade of the technology at Florida’s Walt Disney World.
He didn’t have the same reputation for tearing up the company’s business model and slashing costs. For years as CFO he put off eliminating car allowances for executives that amounted to hundreds of dollars a month. That perk was eliminated after he left the CFO spot.
Contrast that approach with Chapek, a 20-year Disney veteran who replaced Staggs as leader of the parks division in February of last year and has ushered in a series of pricing changes at Disney’s U.S. theme parks. Going to Disneyland during the busiest times of the year now costs as much as 20 percent more. People can now pay up to $35 a day to park closer to entrances at Walt Disney World. A $69 premium gets a patron in 75 minutes before others, and Disney throws in breakfast.
“This combination of surge pricing, after-hours parties, preferred parking -- all of it coming in just a six-week window -- this is not how Disney typically does business,” said Jim Hill, a blogger in New Hampshire who has written about Disney for about 30 years.
Disney declined to make any of the executives available for comment. Staggs, who will remain with the company as an adviser until September, referred questions to Disney’s press office. His departure came because some members of the board weren’t confident he was the best choice to succeed Iger, according to people familiar with the matter.
Iger and his team boosted Disney’s operating profit margin to 25 percent in the fiscal year that ended Oct. 3, the highest of his tenure as CEO and an increase from 20 percent just two years earlier. But through last week, Disney shares had dropped 6.2 percent this year on concern that changes in the cable industry will hurt Disney’s TV unit, its biggest division.
The stock gained 2.6 percent to $101.12 at 1:32 p.m. in New York after Disney’s latest film, “The Jungle Book,” topped box-office estimates in its first weekend, raking in $103.6 million in the U.S. and Canada and putting the movie studio on course for one of its best years ever.
Unlike Staggs, Disney’s current roster of division chiefs has known to wield a hatchet to costs. Jimmy Pitaro, as president of Disney’s interactive unit, led the business to profitability by closing video-game studios, licensing the making of “Star Wars” games to Electronic Arts Inc. rather than making them in-house and supervising the elimination of 700 jobs in March 2014 alone. His strategy included emphasizing mobile games rather than slower-growing console products.
The unit shot from a $308 million loss in 2011 to a $132 million profit in 2015. Last year the interactive business was merged with the $4.5 billion consumer products business, and in February Iger named Pitaro as sole chairman of the combined operation.
Before he moved to the parks division, Chapek had put his stamp on the consumer products unit. His predecessor, Andy Mooney, employed a variety of specialists in food, apparel and toys who worked with manufacturers on product designs. Chapek scrapped that approach to focus on franchises such as “Frozen” and “Star Wars.” Profits at the consumer products division have doubled to $1.7 billion since 2011.
Sherwood, who previously led ABC’s “Good Morning America” to the lead over NBC’s “Today,” fired longtime ABC entertainment chief Paul Lee in February over a ratings decline. Sherwood has been trying to develop ways to make TV viewing more personalized, hiring executives from Wal-Mart Stores Inc. and AOL Inc. to collect customer data and create more short-form video content. On Monday he announced plans to accelerate the distribution of programming from local ABC stations onto new Web-based platforms.
Both Chapek and Pitaro are close to Perlmutter, who is famous for pinching pennies, current and former Disney executives said, and who took an active interest in the consumer products business after the 2009 Marvel acquisition.
“Marvel was certainly culturally very different,” said Bob Boyd, a portfolio manager with Pacific Asset Management, which doesn’t own Disney shares. “We’ve heard many times that he is very opinionated and provided input across Disney.”
Perlmutter made a fortune taking over and flipping distressed companies and now owns a stake of about 1.6 percent in Disney, making him one of the company’s largest shareholders. Tales of his cost-cutting are legion, including pushing to serve potato chips instead of more expensive spreads at Marvel premieres and seeking to lower the pay of stars such as Robert Downey Jr. of “Iron Man.”
Perlmutter’s influence has its limits. Last year he had responsibility for the Marvel film business taken away from him.
Watch Next: Disney's Heir Apparent Tom Staggs Steps Down
Cost controls are necessary, even as Disney invests more in its theme parks, its cruise line and creative output, said Robin Diedrich, an analyst at Edward Jones & Co. in Des Peres, Missouri, who advises buying the shares. “It’s got to be a balance.”
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Electric Buses Are Hurting the Oil Industry
- Why High-Flying U.S. Home Prices Seen Getting Another Jolt
- Stocks Push Higher; Dollar Reaches 3-Month Peak: Markets Wrap
- Stocks Sink as Caterpillar, 3% Yields Rattle Bulls: Markets Wrap
- American Cities Are Fighting Big Business Over Wireless Internet, and They’re Losing