Disney announced Monday, a major reorganization move to boost its streaming services. The entertainment industry is among the hardest hit by COVID-19, that forced many companies in the entertainment ecosystem, including Disney, to think of new strategies to stay in business.
Disney has been riding on Disney+, the streaming service it launched in November last year, as the pandemic took its toll on businesses. The service offers came at $6.99 monthly subscription, a price cheaper than of many competitors, which thus spurred the channel to unprecedented growth within a short period and appears like a lifeline to the troubled company.
Disney drew more than 100 million subscribers to its Disney+, Hulu and ESPN+ streaming worldwide.
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It appears the company is acting on the advice of activist investor Daniel Loeb of hedge fund Third Point, who had earlier urged Disney to forgo a dividend payment and double its programming investment in streaming.
“We are pleased to see that Disney is focused on the same opportunity that makes us such enthusiastic shareholders; investing heavily in the (direct-to-consumer) business, positioning Disney to thrive in the next era of entertainment,” Loeb said in a statement.
Other Disney investors see the restructuring as the right move as it uses the direct to consumer model which is believed to be the future of many businesses.
“This is further proof that the direct to consumer model is not only well received, but more critical than ever to Disney’s future. These moves will not only result in higher quality content, and focused distribution, but allow the company to streamline corporate complexity and hopefully lower expenses,” said Tip tiller, a Disney investor and managing partner at hedge fund Gullane Capital Partners.
Under the restructuring, Disney will separate the development and production of programming from distribution to be more responsive to consumer demands.
“Given the incredible success of Disney+ and our plans to accelerate our direct-to-consumer business, we are strategically positioning our company to more effectively support our growth strategy and increase shareholder value. Managing content creation distinct from distribution will allow us to be more effective and nimble in making the content consumers want most, delivered in the way they prefer to consume it,” said Disney Chief executive Bob Chapek.
The revamp means Disney studios, general entertainment and sports business would come under one division while distribution and commercialization would fall under a separate global unit, the company said.
Under the new structure, Disney said its creative teams would develop and produce programming for streaming and traditional platforms, and the distribution group would decide where customers would see it.
However, the reorganization has come at a cost. Chapek told CNBC in an interview that there would be layoffs as a result of centralization of functions.
As part of its reorganization strategy, Kareem Daniel, who used to be the president of consumer products, games, games and publishing will head the new media and entertainment group.
Alan Horn and Alan Bergman will continue to head Disney’s studio operations, which will manage programming from big franchises including Marvel, Star Wars, Disney animation and Pixar. Peter Rice will run general entertainment programming and Jimmy Pitaro will oversee sports, Disney said.
Disney+ strategically became a saving grace for the entertainment company as the global health crisis delayed Disney’s film, stalled productions and halted social activities.
With Disney’s parks shuttered, the company’s profit dropped a whopping 91% last quarter, an indication that it needed to act fast to savage what is remaining. Streaming thus became a strategy to the rescue – following Loeb’s argument that the company needs to cut its dividend to increase spending on new TV shows and movies for a quick sign up of new customers.
Disney said it would provide more information on its streaming strategy on investor day.