Monday AM Briefing: Is Bob Iger Bringing The Right "Magic" For Disney's Future?
PARQOR is the handbook every media and technology executive needs to navigate the seismic shifts underway in the media business. Through in-depth analysis from a network of senior media and tech leaders, Andrew Rosen cuts through what's happening, highlights what it means and suggests where you should go next.
In Q4 2022, PARQOR will be focusing on four trends. This essay focuses on the themes, "Media companies have consumer credit cards on file. What happens next?"
Author's Note: This week I will write more on Robert Iger’s return to Disney from two perspectives:
Today’s essay argues that the Disney “magic” Iger reportedly thinks Chapek neglected – and which he sees himself as bringing back – may not be the “magic” audiences have been trained to pay for in the age of Fortnite and YouTube.
In Wednesday’s mailing I’m going to look at Disney through the lens of each of PARQOR’s four key trends in media for Q4 2022. The objective is to highlight whether or not Disney is currently positioned to benefit from these trends. In the areas where they are not positioned to do so, I will make recommendations as to what Iger and his management team may need to do in order to change their trajectory.
I thought this line in returning Disney CEO Bob Iger’s memo to Disney Media & Entertainment Distribution staff — his second communication since his surprise return — was notable: “It is my intention to restructure things in a way that honors and respects creativity as the heart and soul of who we are.”
The obvious implication is that the way that former Disney CEO Bob Chapek restructured the organization did *not* honor and respect creativity as the heart and soul of Disney.
Another way Iger could have written that is, “creativity is at the heart and soul of the ‘magic’ of Disney’s ‘Magic Kingdom’, and since I stepped down we have strayed from that.” There are obvious reasons he wouldn’t write it that way. But, the core logic mirrors something he said at his last official appearance at Disney’s annual retreat back in June 2021, as Kim Masters reported for The Hollywood Reporter:
Iger decided to open the meeting by offering his parting advice. A longtime critic of over-reliance on market research rather than instinct and taste, he made an inspirational plea for the value of talent. He touched on the challenges of managing creators but stressed that every transaction at Disney — parks, consumer products, movies and television — starts with creativity.
“In a world and business that is awash with data, it is tempting to use data to answer all of our questions, including creative questions,” he said. “I urge all of you not to do that.” If Disney had relied too heavily on data, he noted, the company might never have made big, breakthrough movies like Black Panther, Coco and Shang-Chi and the Legend of the Ten Rings.
It’s now increasingly clear that this era of YouTube’s and TikTok’s growing dominance of video streaming has transformed the value of both creative and data.
Meaning, audiences increasingly are proving on those platforms that they no longer want to pay only for what legacy media guys would define as "magic". But it's not yet clear that Iger understands this paradigm shift.
Key Takeaway
Returning Disney CEO Bob Iger strongly prefers the "magic" of creativity-driven business models over creative business models driven by data. But the latter are now increasingly Disney's main competitors, and the future of media.
Total words: 1,700
Total time reading: 7 minutes
What is the new media “magic”?
The question that Iger and every other media CEO has had to wrestle with over the past two to three decades is that the Internet would enable new “magic”, but what would that magic be?
In video, YouTube, TikTok and even Netflix have all primarily defined magic through algorithmic recommendations. This description from a recent piece from The Verge on Meta’s struggles highlights the “magic” of TikTok’s algorithm:
Meta realizes that to really compete with TikTok, it has to replicate the magical experience of TikTok’s main “For You” page. The News Feed, which dropped the “News” from its name earlier this year, pioneered a social feed that learns from explicit cues you give it, such as friending someone or following a page. TikTok went a step further by guessing what you like based on your passive viewing habits, injecting a never-ending fire hose of short videos into peoples’ screens. By removing the need to follow accounts before you see interesting videos, TikTok also leveled the playing field for creators, giving them a way to go viral overnight without a large following.
The “magic” doesn’t lie in the content itself but rather in the product design: The magic of an app recommending content the user will like based on passive viewing habits, and creating “a never-ending fire hose of short videos” with a seemingly endless supply of content.
Users of the YouTube apps are also recommended content based on a recommendation algorithm, they are served ads by an algorithm, and their comments are moderated by an algorithm (and the messes those algorithms have created are covered in Mark Bergen’s “Like, Comment, Subscribe”). The “magic” that YouTube has figured out — and which Disney has not — lies in its YouTube Partner Program, which now offers 10 ways for 2MM and growing partner creators to make money.
Audiences will now pay for merchandise, for Super Chat (having messages highlighted for the creator), for Super Thanks (effectively, tips for content), and for channel memberships (exclusive perks and content for monthly paying members). As YouTube recently wrote in a blog post about its Super Thanks offering: "For a lot of our features, we never stop running experiments as we continually look to make improvements that give a better experience to the entire YouTube community. That’s not just viewers and creators, but also advertisers, media partners, third-party developers, and the music industry."
The extraordinary scale of experiments is what makes the “magic” of YouTube and TikTok significant: YouTube has over 2B monthly active users and TikTok has over 1B monthly active users. YouTube has run its partner program since 2007. TikTok launched its Creator Fund in 2020 and launched Pulse in 2022 for revenue sharing with the makers of the top 4% “most engaging” videos across 12 categories, including beauty, fashion, cooking, gaming, and books.
Iger's vision for Disney+ was always more conservative: a low cost, streaming-only service without a personalization algorithm (which Iger pushed back on in 2019 with the rationale “I think if people are clicking on Mickey Mouse, they mostly want Mickey Mouse),. But now Disney+ growth has plateaued, it has lost $1.5B in a its it last quarter, and according to Nielsen, YouTube now has 4.25x the TV usage to Disney+ in the U.S. on TVs.
Meanwhile, YouTube and TikTok have rapidly iterated their products to favor creators and audience engagement with their favorite creators. Disney may never catch up.
The “Magic” of Consumer Products under Chapek
Experimentation — though really more capital spend “principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure”, as it writes in its 10-K and of which it reported $4.9B for 2022, 1.4x its 2021 capital expenditures of $3.6B — is something that has been a constant of Disney’s Theme Parks business and product development. The Park’s famed Magic Pass is a direct-to-consumer product that has evolved iteratively over the past decade: for example, the MagicBand wristband was introduced in 2013, and has since evolved into the MagicMobile Pass, which was introduced for smartphones in 2021. These enable visitors not to have to carry paper tickets or FastPasses, avoid worrying about keeping track of a room key, skip having cash and credit cards at the ready and more.
Similar business logic also drove Chapek’s recent announcements of exclusive deals for Disney+ subscribers for Disney merchandise, theme parks and cruises. Disney+ would become more than just an app — Chapek envisioned it as an “experiential lifestyle platform” for over 150MM Disney streaming subscribers and hundreds of millions more Parks visitors. As I have written previously, the objective was changing the download of Disney+ from the value proposition of streaming content, alone, to “a deeper direct-to-consumer relationship that can be nurtured in ways both obvious (such as sales of consumer products) and less obvious (such as gaming).”
Chapek seemed to understand how consumers have been educated by Amazon and others to expect a subscription service to offer all-in-one packages of content, product and theme parks. His Disney Prime vision offered a utilitarian answer for “magic” — use Disney+ for marginal economic benefits elsewhere in the Disney ecosystem. As un-magical as that may read, it reads much closer to YouTube’s and TikTok’s multipronged business relationships between their millions of creators and billions of viewers than Disney+ as a streaming app, alone.
The Magic Consumer Products under Iger
But clearly neither Disney’s board of directors, largest shareholders, CFO Christine McCarthy nor returning CEO Bob Iger seemed to agree with the vision. Or if they do, they weren’t buying into the sales pitch and/or willing to take on the additional risks — declining linear revenues, 1.5B in streaming losses — that Chapek himself was in order to get there.
Effectively their message to Bob Chapek was the same as former Viacom CEO Mel Karmazin’s message to Larry Page and Sergei Brin during his visit to Google in 2003, delivered after he heard a sales pitch about their plans to measure the effectiveness of advertising . Ken Auletta writes in “Googled” (excerpt here):
This alarmed Karmazin, for it threatened how he sold advertising, which was based on salesmanship, emotion. Karmazin and the networks continued to charge steep rates because, Karmazin says, "advertisers don't know what works and what doesn't. That's a great model."
But it's a model, the Google executives told him, that is horribly inefficient.
Karmazin, before departing, trained his eyes on his Google hosts and blurted, only half in jest, "You're fucking with the magic!"
Exactly two decades later, it is now Google’s data-driven video platform YouTube has the magic, while Disney has pivoted its business to streaming and learned that its DTC focus on streaming lacks any competitive magic (despite its impressive scale). The pandemic seems to have left Iger’s original gameplan with a vulnerability: no one at Disney now seems to know what works or doesn’t work in the DTC space. And it's Bob Chapek who has been thrown under the bus for "fucking with the magic".
The Challenge for Iger's "Magic"
The only clear answer is that Iger’s solution — “honoring and respecting creativity” — may be too narrow a solution for Disney in 2023. And given his past track record with direct-to-consumer initiatives that reflect the new “magic” like gaming — which failed operationally to adapt to the video game model — and YouTube channel Multichannel network Maker Studios — which failed in large part because Disney “wasn’t as keen on making the type of investment required to do original content at scale” — Iger may suffer from a confirmation bias of not appreciating media business models driven by data.
But at a moment when Disney is about to launch its ad-supported platform to compete with the likes of YouTube and TikTok on Connected TVs — where the big dollars will be — these business models driven by data are where the market is headed and where Disney will need to find new competitive advantages.
Must-Read Monday AM Articles
* Disney board’s decision to replace Bob Chapek with Bob Iger makes everyone look bad, argues CNBC’s Alex Sherman (and I agree)
* Finance head Christine McCarthy told directors of her lack of confidence in Bob Chapek after a calamitous November earnings call ($ - paywalled) [NOTE: I think McCarthy is the X-factor here as she is the second largest individual shareholder in management after Iger, and there is an interesting legal debate to be had as to whether she acted in the interests of shareholders.]
* I had a fun brainstorming exercise with Mike Shields about the future of Hulu in "Dear Bob. You want to do something big? Bring back the old Hulu"
* Howard Homonoff argued in Forbes “Iger’s Return To Disney Begs Question Whether Content Is Still King”
* The Chapek-era wasn’t the best of times for the Disneyland Resort
The Vibe Shift
* “Glass Onion” and “Matilda the Musical” theatrical release were “supposed to be the moment to prove the value of theaters” to Netflix, but that moment will not come to pass.
The 200 vs. The 10 Million
* MobileDevMemo’s Eric Seufert wrote about “The state of eCommerce advertising and the impending eCommerce credit reckoning”
* Mike Shields also recently argued "The new streaming (ad) war is Netflix vs. YouTube"
Aggregator 2.0 & Bundles
* N/A
Sports & Streaming
* The World Cup is usually a technological showcase for the sports broadcasting industry. But Qatar 2022 will be more about the acceleration of existing trends than new innovations.
Creator Economy, Platforms & Transparency
* How TikTok amplified ‘House of the Dragon’ popularity for HBO
* Plot Twist: YouTube Shorts Is The Comeback Kid of Short Form Video
* YouTube’s looking to use the FIFA World Cup as another avenue to promote YouTube Shorts via a range of themed activations and challenges for the event.
* A Patreon blog post on “Unlocking creative independence in the Age of Algorithms”
Original Content & “Genre Wars”
* Feast and famine for Disney at Thanksgiving box office
* Inaugural ticket sales for “Strange World” now register as one of Disney’s worst opening weekends in modern times.
AVOD & Connected TV Marketplace
* Sonos appears to be on the cusp of expanding its Flex subscription program, which lets people rent Sonos speakers for a fixed monthly fee.
* How retailers are reshaping the advertising industry. They’re barely noticeable, but promoted items on digital sales platforms are at the vanguard of an industry worth tens of billions of dollars. [$ - paywalled]
* Privacy focused-platform Proton took the unusual step of a blog post arguing “Apple is becoming an ad company despite privacy claims”
* NBCUniversal has formed a measurement innovation forum, with GM, T-Mobile, Pepsico, State Farm and Marriott among those signing on to transact with the company through new currencies
* Anthony Katsur, CEO of the IAB Tech Lab, argued the critical use cases across linear and CTV, “with consumer privacy always in mind”, that the advertising industry must solve.
* National TV ad spend is holding steady—for now
Other
* More than a third of Twitter’s top 100 marketers have not advertised on the social media network in the past two weeks, a Washington Post analysis of marketing data found — an indication of the extent of skittishness among advertisers about billionaire Elon Musk’s control of the company.