The bombshell news on Sunday that Bob Iger was returning to the Walt Disney Company as CEO and that his hand-picked successor Bob Chapek was out the door – immediately – followed a series of blunders but came down to a big miss on quarterly earnings reported earlier this month, according to multiple individuals with knowledge of the situation.
Disney, a former blue-chip stalwart, has seen its stock price plummet 41% since January. And Wall Street had been expecting post-COVID streaming growth, theme park profit and projections for a better year to come during earnings on November 8. Instead, profits rose just 30 cents a share on revenue of $20.15 billion, rather than the expected 54 cents per share on revenues of $21.2 billion.
“After the last earnings call, I felt like the tide had turned against Chapek,” one insider said, observing that Chapek and other Disney executives on the earnings call acted as if it was a perfectly fine quarter despite the gloomy reality. “The tone shifted.”
Disney+ added subscribers but still proved to be losing nearly $1.5 billion, more than twice as much as a year earlier, with streaming profitability pushed off to September 2024 at the earliest. Even the theme parks, Chapek’s former fiefdom before he ascended to CEO, failed to deliver an expected boost in operating income despite rising revenues. (The next day, Disney shares dropped 12%.)
The fact that Chapek’s abrupt firing came just five months after the board renewed his contract for three years is a signal of how precipitous the decision was, according to several individuals close to the company.
The Disney board held an emergency meeting on Saturday night to finalize the decision to remove Chapek and bring back Iger, according to an individual with knowledge of the decision. The beloved CEO had fully retired as chairman of the company in December 2021, after handing the CEO reins to Chapek in February 2020.
In a terse statement, the board said, “The Board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the Company through this pivotal period.”
The company’s stock rose 10%, to $101.02 in premarket trading on Monday.
Chapek had already weathered a number of PR debacles, from the mishandling of the don’t-say-gay law in Florida in 2021, to rough treatment of Marvel star Scarlett Johansson early on during COVID, to the sudden dismissal of respected Disney streaming and television leader Peter Rice in mid-2022.
Just two years into his tenure, the hard-charging, top-down Chapek had managed to alienate both the rank and file on Disney’s creative team – especially in animation and Imagineering – while also losing the confidence of Wall Street, several senior executives and ultimately the board (led by longtime member Susan Arnold, who will remain as chairman).
In recent months, Iger has also let it be known to his close confidantes “that he thought Chapek was a mistake,” as the insider put it.
A spokesman for Disney declined to comment for this story.
In truth, the decision to bring Iger back as CEO is also a not-very-subtle indictment of Iger’s own failure to plan and execute a successful succession. For all of Iger’s talents as a corporate leader, and they are many, that is widely seen as a clear gap in his legacy.
For years, he would groom potential successors only to see them exit the company when they failed to get the job: Former CFO Jay Rasulo stepped down in 2015, short-lived COO Tom Staggs left in 2016, and Kevin Mayer, who oversaw the successful launch of Disney+, followed in 2020. Chapek emerged that year as a surprise choice to take the reins and then made similar efforts to shore up his power — ousting former Fox executive and head of TV content Rice earlier this year in what was widely seen as a play to remove a potential rival.
Now Iger has two years to set a new succession plan, one that will stick, but the Disney he takes over is in a much more challenged state than the one he left. With a recession looming, advertising revenue headed downward and a plethora of competitor streaming services that did not exist when he left the C-suite, Iger will need to focus and prioritize a recovery plan quickly.
He also faces the scrutiny of activist investor Dan Loeb’s Third Point, which acquired a sizable stake in the company in August and then pressed for major changes to the business — including spending cuts, an overhaul of the board and a spinoff of ESPN that Loeb later retracted.
Among Iger’s first moves is expected to be a dismantling of the centralized structure put in place by Chapek, with all budgeting decisions made by the Disney Media & Entertainment Division led by Kareem Daniel. Daniel’s future is also in question, as a hard-core Chapek loyalist who has overseen the company’s slide. Iger was known not to favor taking so much power from the creative department leaders in film and television.
“I’d expect him to undo most of Chapek’s structure,” one rival studio executive noted of Iger.
Additionally, Iger may also be tempted to turn to acquisition as a buttress for Disney growth — just as he did in the past. During his previous 15-year run as CEO, he oversaw the acquisitions of Pixar, Marvel Studios, Lucasfilm and 21st Century Fox — and doubled the company’s revenues from $32 billion to $70 billion.
The likeliest target would be the company built and run by two of his former lieutenants, Kevin Mayer and Tom Staggs. The two former Disney executives — once considered possible successor before Chapek’s selection — have built a powerhouse content in just two years with Candle Media, amassing about $4 billion in enterprise value in the children’s content leader Moonbug Entertainment and Reese Witherspoon’s Hello Sunshine, among others.
Unfortunately, Disney is still absorbing the financial costs of its $71.3 billion of Fox’s film and TV assets — and reported $48.4 billion in long-term debt earlier this month, making any new acquisition a challenge especially in an era of rising interest rates.
Two years is not a lot of time to set a company on the right path, but given the urgency of the time frame, Iger was probably the only option, several observers pointed out. “I don’t think succession went well,” one insider said. “But I think his tenure as CEO went well – and this decision made sense.”
“But now,” the individual added, “you have a really glaring succession question.”
Scott Mendelson contributed to this report.