On Wednesday, Walt Disney Co. announced it is laying off 7,000 employees, under the recently returned CEO Bob Iger, in its effort to save $5.5 billion in costs and make Disney’s streaming business profitable.
The layoffs equals 3.6% of Disney’s global workforce. The company’s shares increased 4.7% to $117.22 just hours after trading.
The efforts included a promised dividend for shareholders and addressed the criticism from activist investor Nelson Peltz that the media company was over-investing in streaming.
In a statement on Wednesday, a spokesperson for Peltz’s Train Group said, “We are pleased that Disney is listening.”
To minimize costs and return power to creative executives, the company will bring reforms in three segments: an entertainment unit with films, television and streaming; a sports-centred ESPN unit; and Disney parks, experiences and products.
On a conference call, Iger told the analysts “This reorganization will result in a more cost-effective, coordinated approach to our operation. We are committed to running efficiently, especially in a challenging environment.”
Still, streaming is Disney’s top priority, Iger said.
He said the company would “focus even more on our core brands and franchises” and “aggressively curate our general entertainment content.”
Peltz, who is looking for a seat on the Disney board, had supported the renewal of the dividend by fiscal 2025.
Paul Verna, principal analyst at subscription-based market research company Insider Intelligence, “My sense is that Disney is already doing many of the things Nelson Peltz is demanding, though not necessarily in response to pressure from him.”
Iger said Disney was not involved in discussions to spin off ESPN, which will continue under Jimmy Pitaro. The entertainment unit will be headed by TV executive Dana Walden and film chief Alan Bergman, while Disney parks, experiences and products, led by Josh D’Amaro.
Disney’s third restructuring
Disney is the latest media company to cut its workforce to minimize cost in the company’s profit for the year-end 2022 quarter, CEO Iger said on Wednesday.
The reduction in jobs was a step for Disney to attain about $5.5 billion in cost savings. This consists of $2.5 billion meant for “non-content costs” (including labour costs) and $1 billion that focused on cost reductions that are already under progress, Iger said. Disney’s CFO Christine McCarthy told analysts the company’s objective is an annual reduction of $3 billion in non-sports content that is expected to be comprehended in the next several years.
According to Refinitive data, at the end of the first fiscal quarter, on December 31, Disney reported net earnings per share of 99 cents, while the analyst forecasted 78 cents.
The company’s net income was estimated at $1.279 billion which was below what the analyst forecasted. While the revenue came in at $23.512 billion which beat Wall Street’s estimate of $23.4 billion.
McCarthy said that of $2.5 billion in non-content expenses, about 50% stands for marketing spending; 30% for labour costs; and 20% for technology, procurement and other expenses. Disney hopes the cost savings will “fully materialize” by the end of fiscal 2024.
Iger stated that he is responsible for the decision to cut jobs. He said, “I have enormous respect and anticipation for the dedication of our employees worldwide.”
Iger said, “We are going to take a really hard look at everything we make (in general entertainment) because things in a more competitive world have simply gotten more expensive.”
The restructuring of the company under Iger’s leadership, whose reign began as CEO in 2005, is a new phase in his return. He planned to secure Disney by collaborating with powerful entertainment brands, such as Pixar Animation Studios, Marvel Entertainment and Lucasfilm. Iger also reorganized the company to invest in the streaming revolution, gaining 21st Century Fox’s film and television assets in 2019 and releasing the Disney+ streaming service.
Iger resigned as CEO in 2020 but reinstated his position in November 2022.
At present, Iger plans to put Disney’s streaming business on track for growth and profitability. The restructure presents Iger’s promise to delegate decision-making to its creative leaders, who decide what movies and series to make and how the content will be distributed and marketed.
This is Disney’s third restructuring in five years. In 2018, it restructured its business to bolster the growth of its streaming business, and again in 2020, to stimulate its streaming growth.
Disney had previously made cuts during the pandemic, when it reduced 32,000 of its workforce, especially in its theme parks, which took place in the first half of fiscal 2021.
