Disney said it is cutting 7,000 employees from its global workforce as part of a multibillion-dollar cost-cutting initiative aimed at streamlining the company’s operations at a time of turmoil in the media industry.
Disney had approximately 220,000 employees as of October 1, of which approximately 166,000 were employed in the United States. A cut of 7,000 jobs represents about 3% of its global workforce.
“While this is necessary to address the challenges we face today, I do not take this decision lightly,” said CEO Bob Iger, who returned to lead the company in November when the board dismissed Bob Chapek as company leader.
“I have enormous respect and appreciation for the talent and dedication of our employees around the world, and I am aware of the personal impact of these changes.”
Iger also took steps to reward shareholders, while Disney employees will be impacted by the job cuts announcement.
The company had suspended dividend payments during the pandemic. Iger announced that he expects that to come back.
“Now that the impacts of the pandemic on our business are behind us, we intend to ask the board to approve the reinstatement of a dividend by the end of the calendar year,” he said.
“Our cost reduction initiatives will make this possible. And while it’s a modest dividend initially, we expect to increase it over time.”
Cost cutting efforts
The job cuts are part of a cost-cutting effort also announced on Wednesday (8). Iger said the company aims to save $5.5 billion in costs, with $2.5 billion coming from annual savings in “non-content” operations.
Content operations refer to business units such as movies and television shows.
He said 50% of the cost savings would come from marketing expenses, 30% of the labor savings, and 20% of the cost savings would come from less spending on technology, procurement, and other expenses.
Because Disney is such a big advertiser, a $1 billion reduction in annual marketing spend spells more trouble ahead for other media as well as technology companies.
The big job cuts were announced by Iger after the company reported better-than-expected financial results for the fourth quarter of 2022. Disney’s revenue for the quarter rose 8% to $23.5 billion, beating estimates from $23.4 billion from analysts consulted by Refinitiv.
Earnings per share, while slightly lower than a year ago, beat forecasts, coming in at $0.99 excluding special items. That’s down from the $1.06 per share it earned on that basis a year earlier, but much better than the forecast of $0.78 per share.
The company said the results were helped by strong box office showings, including for the hit “Avatar: The Way of Water”, and exceptionally robust revenue from theme parks.
Disney+ Subscriber Drops and Losses
The company said it lost Disney+ streaming subscribers in the last quarter, but it also managed to trim losses from the previous three-month period. Disney has cut marketing expenses for streaming and has also adjusted pricing plans in an effort to attract more profitable subscribers.
The number of subscribers fell just 1%, from 164 million to 162 million, at the end of the quarter ended October 1. But its other streaming businesses, including ESPN+ and Hulu, in which it has a stake, both had subscriber numbers rise 2%.
That helped Disney trim its overall streaming segment losses to $1.1 billion for the quarter from $1.5 billion for the quarter ended Oct. million reported in the previous year.
Disney’s streaming services, highlighted by its Disney+ offering, had been reporting subscriber increases and losses in recent quarters.
The company reaffirmed its guidance that Disney+ remains on track to be profitable in the next fiscal year, which runs from October to September 2024, although it warned that this could be affected by an economic downturn.
With consumers cutting back on cable TV plans, the need for a profitable streaming offering is seen as critical. Disney profited for years from revenue from pay-TV subscriber fees.
Iger said the increased attention to improving profitability in the streaming business doesn’t mean the company is turning away from him as a key to its future.
“The streaming business, which I believe is the future and is growing, is basically not delivering the kind of profitability or bottom line that the linear business has given us over a few decades,” he said, referring to programming on television or in movie theaters.
He said streaming “remains our #1 priority. It is, in many ways, our future, but we will not abandon linear or traditional platforms while they can still be of benefit to us and our shareholders.”
Disney shares rose 6% in aftermarket trading after the cost-cutting and dividend return announcement. The company’s shares have lost 43% of their value in 2022, but are up nearly 22% since Iger’s return was announced in November, as of Wednesday’s close.
That’s much better than the overall market, but it lags behind the same-period earnings at some other media companies like Netflix or Warner Bros. Discovery, owner of CNN .
Iger lays out his plans
This was Iger’s first quarterly report since returning as CEO. While he had already announced some changes, many investors were looking to these quarterly earnings for clarity on Disney’s strategic direction going forward.
Iger announced that it will combine all of its media and content businesses globally, including streaming, into a new segment known as Disney Entertainment. He said the reorganization is the key to a “return [da] creativity at the heart of the company”.
And he criticized the way the company had been structured under Chapek.
“Our company is fueled by stories and creativity,” he said. “I’ve always believed that the best way to encourage great creativity is to make sure the people who manage the creative processes feel empowered. Therefore, our new structure aims to devolve greater authority to our creative leaders and hold them accountable for the financial performance of their content. Our previous structure severed that link and it must be restored.”
He also dismissed the idea that Disney would move to get rid of ESPN, as some have suggested in the past.
Source: CNN Brasil
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