Robert Iger Returns to Disney Facing Radically Different Streaming Landscape

Walt Disney Co.

DIS -1.40%

has brought back the CEO responsible for its pivot to streaming. As he returns,

Robert Iger

has to navigate a competitive landscape that is far more challenging than when he left less than three years ago.

Investors say Mr. Iger is facing the same predicament as other leaders of large entertainment conglomerates: finding ways to grow and improve the streaming unit’s profitability without cannibalizing its lucrative businesses of creating content for television and movie theaters. Disney, as well as peers including

Warner Bros. Discovery Inc.,

WBD 2.27%

must now carefully decide where and how best to release, sell or license its content.

Previous CEO

Bob Chapek,

who was ousted as CEO by Disney’s board Sunday evening, had planned to address the company’s need for improved streaming profits with a mix of price increases, an ad-supported tier of Disney+ and more cross-selling of Disney products.

When the company launched its Disney+ streaming service in 2019, two years after Mr. Iger announced plans to do so, Wall Street cheered the move as a way for Disney to compete with

Netflix Inc.

NFLX 0.58%

For years, Netflix had licensed Disney content and sold it to customers as part of a giant library for which they paid a small monthly fee. Having its own streaming service gave Disney more control over its films and shows, and created a more direct relationship between the company and its fans.

Disney emphasized adding subscribers quickly, forging promotional partnerships with companies like

Verizon Communications Inc.

to broaden its distribution. It grew at a frenetic pace, amassing over 164 million subscribers in the three years since its inception. Factoring in ESPN+ and Hulu, which Disney controls, the company has more streaming subscribers than Netflix.

Under Mr. Chapek, Disney increased its content spending dramatically, to around $30 billion this fiscal year alone. At the same time, the company charged customers far less for Disney+ than most of its rivals, including Netflix and

Warner Bros. Discovery Inc.’s

HBO Max. This helped attract customers, but led to ever-growing losses for Disney’s streaming division, which ballooned to $1.47 billion in the most recent quarter.

“The area that Bob [Iger] can really focus on is not just growth but profitable growth,” said Shri Singhvi, AllianceBernstein L.P.’s chief investment officer of strategic equities, who manages about $15 billion in assets. He said he bought Disney stock midway through the year after shares sold off. While Disney and Netflix in the past focused on subscriber growth at any cost, “a lot of shine has come off that,” he said.

Robert Iger’s Biggest Moves That Reshaped Disney: From Star Wars to Streaming

Less than 24 hours after returning to the helm of Disney, Mr. Iger moved to disband a two-year old unit that put streaming at the forefront of the company’s content strategy, undoing one of Mr. Chapek’s biggest changes.

“It is my intention 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 memo Monday in which he announced the reorganization of Disney Media & Entertainment Distribution.


Do you subscribe to Disney+, Hulu or ESPN+? Why or why not? Join the conversation below.

Mr. Iger said the division’s boss—

Kareem Daniel,

a top lieutenant to Mr. Chapek whose job entailed deciding where Disney’s movies and TV shows would be shown—was leaving the company. Disney will put in place a new structure “that puts more decision-making back in the hands of our creative teams and rationalizes costs,” Mr. Iger said.

Under Mr. Chapek, Disney said it would raise the price of Disney+ to $10.99 a month from $7.99 on Dec. 8, and launch an ad-supported tier of service that will cost $7.99 a month. The company also raised the monthly price of ESPN+ in August to $9.99, a 43% increase.

Netflix earlier this month also launched an ad-supported tier of service to increase revenue and plans to limit password sharing next year. It charges $6.99 per month for the ad-supported plan.

Many of the streaming industry’s biggest players are shifting from a growth-oriented streaming strategy to profitability, but are doing so in a difficult economic environment and an intensely competitive market.

“There has to be reflection on what the return on invested capital is” in the streaming business now, said

Michael Nathanson,

a senior research analyst at MoffettNathanson, a division of SVB Securities.

Warner Bros. Discovery CEO

David Zaslav

recently said that profitability, not the number of streaming subscribers, will be the company’s benchmark of success.

“I believe the grand experiment chasing subs at any cost is over,” Mr. Zaslav said earlier this month. Spending a lot on content while making a “fraction in return all in the service of growing sub numbers has ultimately proven, in our view, to be deeply flawed,” he said.

Some streaming services are turning to sports to draw in new audiences at home and abroad, though bidding wars over rights are pricey. Disney recently lost the streaming rights to cricket’s Indian Premier League earlier this year, a hit to its international expansion ambitions, though it has pursued other rights for the sport. The company’s streaming service in India, Disney+ Hotstar, accounts for 61.3 million of Disney+’s total 164.2 million streaming subscribers.

While Disney and Netflix boast the largest base of streaming subscribers around the world, they are subject to the same competitive pressures as their smaller rivals. The U.S. economy is showing signs of slowing, foreign-exchange rates are eating into overseas profits, the domestic market is saturated and consumers with more choices than ever are jumping from service to service.

The share of new subscribers who cancel after one month has ticked up at Hulu, Disney+ and ESPN+ over the last year, according to streaming-service data provider Antenna. The average monthly churn, or the rate of customer defections, also has risen over the last year at Disney+, according to Antenna, as it has across the streaming industry.

Disney said the popularity of the “Disney Bundle” of Disney+, ESPN+ and Hulu helped mitigate some customer churn and increased the long-term subscriber value, but the bundle also weighs on the average revenue per user the company makes.

Determining how best to release content is another major challenge for companies like Disney. It recently said “Hocus Pocus 2,” a fantasy comedy sequel to a popular Halloween film that was available only on Disney+, was the streaming service’s most-watched premiere. That prompted some analysts to ask if Disney left money on the table by not releasing it in theaters. On the other hand, “Lightyear,” the origin story of Buzz Lightyear from Toy Story, drew smaller audiences than expected this past summer when it was released in theaters.

Corrections & Amplifications
Under Bob Chapek, Disney increased its content spending dramatically, to around $30 billion this fiscal year alone. A previous version of this article incorrectly said the content spending was for Disney+ alone.

Write to Sarah Krouse at [email protected]

Walt Disney Co. replaced CEO Bob Chapek with Robert Iger, the company’s former chairman and CEO. WSJ’s Robbie Whelan explains what happened at the company to precipitate the sudden move and what challenges lie ahead. Photo: Chris Pizzello/AP

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