Disney said it would cut 7,000 jobs from its global workforce, part of a multibillion-dollar cost-cutting initiative aimed at streamlining the company’s operations in a period of media industry turmoil.
Disney had about 220,000 workers 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’re facing today, I do not make this decision lightly,” said CEO Bob Iger, who returned to lead the company in November when the board fired Bob Chapek as the company’s leader. “I have enormous respect and appreciation for the talent and dedication of our employees worldwide, and I’m mindful of the personal impact of these changes.”
Iger also took steps to reward shareholders, while Disney employees will feel pain from the job cut announcement.
The company had suspended its dividend payments during the pandemic. Iger announced it expects that to return.
“Now that the pandemic impacts to our business are largely 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-cutting initiatives will make this possible. And while initially, it will be a modest dividend, we hope to build upon it over time.”
Cost cutting efforts
The job cuts come as part of a cost-cutting effort also announced Wednesday. Iger said the company is aiming for $5.5 billion of cost savings across the company, with $2.5 billion of that coming from annual savings in “non-content” operations. Content operations refers to business units such as movies and television shows.
It said 50% of the cost savings would come from marketing expenses, 30% from labor savings and 20% of the cost savings would come from less spending on technology, procurement and other expenses. Since Disney is a major advertiser, a $1 billion reduction in annual marketing expenditures signals more difficulties ahead for other media, as well as tech companies.
The sweeping job cuts were announced by Iger after the company released better than expected financial results for the fourth quarter of 2022. Disney revenue in the quarter rose 8% to $23.5 billion, edging past estimates of $23.4 billion from analysts surveyed by Refinitiv.
Earnings per share, while slightly lower than a year ago, shot past forecasts, coming in at 99 cents excluding special items. That’s down from the $1.06 per share it earned on that basis a year earlier, but far better than the forecast of 78 cents a 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 theme park revenue.
Drop in Disney+ subscribers and losses
The company reported that it lost Disney+ streaming subscribers in the last quarter, but also managed to trim its losses from the previous three-month period. Disney cut the marketing expenses for streaming, and also adjusted pricing plans in an effort to attract more profitable subscribers.
The number of subscribers was down only 1%, to 162 million from 164 million, at the end of the quarter that 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 to trim it losses in the overall streaming segment to $1.1 billion in the quarter, down from $1.5 billion in the quarter ending October 1, although it was nearly double the $593 million loss it reported a year earlier.
Disney’s streaming services, highlighted by its Disney+ offering, had been reporting increases in both subscribers and losses in recent quarters.
The company reaffirmed its guidance that Disney+ remains on course to be profitable in the next fiscal year, which runs from October through September 2024, although it cautioned that could be affected by an economic downturn.
With consumers cutting the cord on cable services, the need for a money-making streaming offering is seen as critical. Disney had profited for years from cable subscriber fee revenue.
Iger said increased attention to improving profitability in the streaming business does not mean that the company is moving away from it as a key to its future.
“The streaming business, which I believe is the future and has been growing, is not delivering basically the kind of profitability or bottom line results that the linear business delivered for us over a few decades,” he said, referring to programming on television or in movie theaters.
He said that streaming “remains our #1 priority. It is, in many respects, our future, but we’re not going to abandon the linear or the traditional platforms while they can still be a benefit to us and our shareholders.”
Shares of Disney (DIS) jumped 6% in after-markets trading following the announcement of cost cutting and the return of the dividend. Shares of Disney (DIS) lost 43% of their value in 2022, but are up nearly 22% since Iger’s return was announced in November, through Wednesday’s close. That is far better than the overall market but behind the gains in the same period at some other media companies, such as Netflix (NFLX) or Warner Bros. Discovery, the owner of CNN.
Iger lays out his plans
This was Iger’s first quarterly report since returning as CEO. While he had previously announced some changes, many investors had been looking to this quarterly earnings for clarity on Disney’s strategic direction going forward.
Iger announced that he will be combining all its media and content businesses globally, including streaming, into a new segment to be known as Disney Entertainment. He said the reorganization is a key to a “return [of] creativity to the center of the company.”
And he took shots at the way the company had been structured under Chapek.
“Our company is fueled by storytelling and creativity,” he said. “I’ve always believed that the best way to spur great creativity is to make sure that people who are managing the creative processes feel empowered. Therefore, our new structure is aimed at returning greater authority to our creative leaders and making them accountable for how their content performs financially. Our former 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.
