The Walt Disney Company CEO Bob Iger confirmed much of the content the company created for Disney+ was not “driving sub growth” for the streaming platform. In fact, he admitted some of the programming they created did not drive sub growth at all.
During The Walt Disney Company’s Q2 FY23 Earnings Results webcast, Iger stated, “As we grow the business in terms of the global footprint, we realized that we made a lot of content that is not necessarily driving sub growth and we’re getting much more surgical about what it is we make.”
“So as we look to reduce content spend, we’re looking to reduce it in a way that should not have any impact at all on subs,” he asserted. “We believe there is an opportunity for us to focus more on real sub drivers.”
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Iger went on to reveal that many of the pieces of content they created were negatively impacting the company’s bottom line due to their marketing costs outweighing the subscription revenue.
He explained, “And one interesting example — I should throw marketing in too — where when you make a lot of content everything needs to be marketed. You’re spending a lot of money marketing things that are not going to have an impact on the bottom except negatively due to the marketing costs.”
“One thing we also know is that our films, those that are released theatrically, big tentpole movies, in particular, are great sub drivers, but we were spreading our marketing costs so thin that we were not allocating enough money to even market them when they came on the service.
Iger then went on to admit there was a number of pieces of programming that were not driving any subscriptions whatsoever, “As witnessed by the ones that are coming up including Avatar, Little Mermaid, Guardians of the Galaxy, Indiana Jones, Elemental, etc…, where we actually believe we have an opportunity to lean into those more, put the right marketing dollars against it, allocate more away from programming that was not driving any subs at all.”
“I guess this is part of the maturation process as we grow into a business that we had never been in. We are learning a lot more about it. Specifically, we are learning a lot more about how our content behaves on the service, and what it is consumers want,” he concluded.
As for the new strategy the company plans to employ The Walt Disney Company’s Senior Executive Vice President and Chief Financial Officer Christine McCarthy detailed it earlier in the Earnings Results webcast.
She said, “We are in the process of reviewing the content on our DTC services to align with the strategic changes in our approach to content curation that you’ve heard Bob discuss. As a result we will be removing certain content from our streaming platform and currently expect to take an impairment charge of approximately $1.5 to $1.8 billion. The charge, which will not be recorded in our segment results, will primarily be recognized in the third quarter as we complete our review and remove the content. And going forward we intend to produce lower volumes of content in alignment with this strategic shift.”
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This strategy was previously detailed by Iger back in the company’s Q1 FY23Earnings Results webcast when he fielded a question from Michael Nathanson of MoffettNathanson.
Iger said, “In additionally we are going to lean more into our franchises, our core franchises, and our brands. I talked about curation in general entertainment. We have to be better at curating the Disney, and the Pixar, and the Marvel, and the Star Wars of it all.”
“And, of course, reduce costs on everything that we make. While we are extremely what’s proud on the screen, it’s gotten to a point where it’s extraordinarily expensive. We want all the quality. We want the quality on the screen, but we have to look at what they cost us,” he continued.
“So, we are going to continue to go after [subscriptions], but we’re going to be more judicious about how we do that. We are going to look carefully at pricing,” Iger said. “We’re going to reduce costs both in content and, of course, infrastructure, there’s a lot that we’re getting at that there.”
“Marketing is another area where we are going to try and rebalance marketing the platform versus marketing the programs,” he added.
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He would reiterate this strategy and how the company needs to focus on quality over quantity during an appearance at a Morgan Stanley conference.
He said, “You know, there’s so much consumer choice right now, and it comes back to, What is differentiated? That’s one thing obviously we have talked about, is those brands: Star Wars, Marvel and Disney and Pixar, for instance. But quality is also a differentiator.”
“I think HBO proved that well, you know, in their halcyon days when high-quality programming made a big difference, and not volume,” Iger asserted. “And because the streaming platforms require so much volume, one has to question whether that’s the right direction to go, or if you can be more curated, more — I used the word ‘judicious’ a few times — but I guess, more picky about what you’re making, and to concentrate on quality and not volume.”
What do you make of Bob Iger admitting his Disney+ strategy was negatively effecting the bottom line? Do you think he can turn it around with a focus on less content and quality? Do you think the quality of Disney programming can improve with Iger in charged given he tacitly admits the quality wasn’t there with him in charge to begin with?
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