Walt Disney's CFO, others raised concerns with the board about Bob Chapek

Behind the a surprise change in management at

Walt Disney Co.

DIS 6.30%

on Sunday, discontent intensified among investors and senior executives, including Chief Financial Officer Christine McCarthy, who in recent weeks has expressed to directors her lack of confidence in Chief Executive Officer Bob Chapek, according to people familiar with the matter.

Disney executives and investors have complained for months to previous Chief Executive Robert Iger about the company’s direction under Mr. Chapek, according to people familiar with the matter. Mr. Iger advised some of those executives to take their concerns to the company’s board, some people familiar with the matter said.

Then came November 8th and Disney disastrous fiscal fourth quarter earnings report.

On Sunday night, Disney said Mr. Iger will return as CEO after a previous 15-year stint in the role and that Mr Chapek had left after less than three years on the job.

On Monday, the company said that Kareem Daniel, Mr. Chapek’s top lieutenant, whose job included deciding how Disney movies and TV shows would be shown — in theaters, on streaming platforms or on TV — was leaving the company and that his division would be overhauled.

“In the coming weeks, we will begin implementing organizational and operational changes across the company. My intention is to restructure things in a way that honors and respects creativity as the heart and soul of who we are,” Mr. Iger said in a note.

Shares closed Monday at $97.58, up 6.3%marking the stock’s biggest gain since Dec. 11, 2020. It’s down 37% so far this year.

The board of directors earlier this year credited Mr. Čapek with running the company through the worst of the coronavirus pandemic. Under his leadership, Disney’s theme parks division reported record quarterly revenue and profit.

Mr. Capek’s position at the top of the company has been shaky for months, according to people familiar with the matter, although Disney’s board of directors unanimously decided in June to renew his contract through the end of 2024.

The company was under pressure by two prominent activist investors to cut costs and make major changes in strategy.

The issue came on Nov. 8, when Mr. Chapek hosted a conference call with analysts following Disney’s weaker-than-expected quarterly report. Disney just reported a $1.47 billion loss in its streaming business, more than double the loss reported in the year-ago quarter and below analysts’ expectations on revenue and earnings.

Profit margins at theme parks — Disney’s best-performing division over the past year — are shrinking, the company said, and the streaming segment’s target for profitability by September 2024 could be in jeopardy if the economy worsens. Despite the gloomy report, Mr. Čapek’s tone during the call was upbeat and his outlook positive.

“We believe we are on track to a profitable streaming business that generates shareholder value long into the future,” he said.

Investors didn’t buy it. Disney’s stock price fell 13% the next day to close at $86.75. Analysts began publishing negative reports about the company’s outlook, and CNBC’s Jim Cramer, who hosts a financial markets show, called for Mr. Chapek to be fired.

Ms. McCarthy, the CFO, told board members she was unhappy with the way Mr. Chapek had communicated with investors on the conference call, people familiar with the matter said.

On Friday, according to people familiar with the matter, Mr. Iger received a call from Susan Arnold, chairman of the board of Walt Disney, the company he led as chief executive for 15 years. Ms. Arnold, who had not spoken to Mr. Iger in months, asked: Would Mr. Iger consider returning to run Disney again?

Frantic negotiations unfolded over the next two days, culminating Sunday night, just as many of the company’s top executives were on their way to an Elton John concert in Los Angeles that aired on Disney+, with the surprise announcement that Mr. n Chapek had stepped down and Mr Iger would return as chief executive.

Meanwhile, Nelson Peltz’s Trian Fund Management LP acquired a significant stake in the company earlier this month and is seeking a seat on the board as it pushes for other operational changes, according to people familiar with the matter.

Trian’s view is that Mr. Iger should not return to control the company, the people said. The executives of Trian, which was founded by Mr. Peltz, Ed Garden and Peter May, have also initiated dialogue with Disney management about having Mr. Peltz serve on the company’s board, according to the people.

According to people familiar with the matter, Mr. Iger has long expressed dissatisfaction with the organizational structure that Mr. Capek has put in place to handle content distribution.

Shortly after taking the reins of the entertainment giant, Mr. Capek restructured the company’s TV and film operations and created a distribution unit to determine the best platform for any given content, whether it was a streaming service, a TV network or theaters. As part of this change, content managers they no longer had control over their budgets.

Disney said Robert Iger will return as CEO after a previous 15-year stint in the role.


Mario Anzuoni / REUTERS

Mr. Chapek said at the time that the moves were a recognition of changing consumer habits and aimed to prioritize their video streaming services. Mr. Iger has told people close to him that he doesn’t think the new regime makes sense, the people said, adding that it takes away freedom from the creative side of the business.

The company’s flagship streaming service, Disney+, is the brainchild of Mr. Iger. Launched in autumn 2019, it has grown at a breakneck pace, thanks in part to a competitive pricing strategy – at launch it cost around half of

Netflix Inc

most popular plan. It also offers multiple deals with trading partners from

Verizon Communications Inc.


Delta Air Lines Inc.

that offer the service at a discount or at no extra charge.

In the three years since its inception, Disney+ has amassed over 164 million subscribers, about three-quarters of Netflix’s current subscriber base of 223.1 million. Overall, Disney, which also owns the ESPN+ streaming platform and controls most of Hulu, boasts more streaming subscribers worldwide than any other company.

But the streaming division, which Mr. Chapek said he expects to be profitable by the company’s 2024 fiscal year, has lost more than $8.5 billion since the launch of Disney+ and has posted larger operating losses in each of the past four quarters . Under Mr. Chapek’s leadership, Disney+ has dramatically increased its spending on content — to about $30 billion this year alone.

Like many of its competitors, Disney is now trying to transition from a growth-oriented streaming strategy to profitability, but it is doing so in a difficult economic environment and a highly competitive market.

Disney is moving some shows that were supposed to be originals to Disney+ and airing them first on other networks, including the Disney Channel, people familiar with the matter said. That way, production and marketing costs for the shows — which include mystery show The Mysterious Benedict Society and medical drama Doogie Kameāloha, MD — will be shifted from the streaming service, making its bottom line look better , they said.

Ms. McCarthy was concerned about that strategy, the people said.

How Disney created its own government in Florida

In another attempt to improve the profitability of its streaming unit, Disney is about to raise the price of Disney+ and launch an ad-supported service level. The company also raised the monthly cost of ESPN+ in August to $9.99, a 43% increase.

JP Morgan analysts on Monday said they expected little change in Disney’s streaming strategy, but said Mr Iger may try to speed up the buying process

Comcast of Corp

Bet on Hulu. The cable giant retains a 33% stake in the streaming service, which Disney may decide to acquire in early 2024.

Mr. Capek has faced other challenges besides the unprofitable streaming business during his two-year tenure.

He has alienated people in Disney’s animation divisions, including Pixar, people familiar with the situation said. Mr. Chapek recently suggested in an interview at a Wall Street Journal conference that adults haven’t seen the company’s animation. Some of the animation team felt the remark demeaned the value of their content, which has been a staple of the company since its inception.

Since stepping down as Disney’s executive chairman late last year, Mr. Iger has kept busy mentoring tech startup founders and joining the board of venture capital firm Thrive Capital.

He has also told people close to him that retirement is not as pleasant as he thought it would be, in part because he does not get to spend enough time with his wife, journalist Willow Bay, who signed a new five-year contract in March. contract to continue his role as dean of the Annenberg School for Communication and Journalism at the University of Southern California.

Sarah Cruz and Lauren Thomas contributed to this article.

Write to Robbie Whelan at [email protected]Emily Glazer c [email protected]Joe Flint c [email protected] and Jessica Tunkel c [email protected]

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