Sunday night's bombshell that Bob Iger had returned as CEO of The Walt Disney Company, pushing aside former CEO Bob Chapek, has led to speculation about The Mouse's overall strategy and its Disney+ streaming business.

Disney said Iger has agreed to serve as Disney's CEO for two years, with the mandate from the board to "set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term." Chapek, who was elevated to Disney CEO in February 2020, has stepped down from his position. Iger's in line for a base salary of $1 million and will be eligible for annual, performance-based bonuses, according to this 8-K filing.

The surprise announcement arrived less than a month after Disney posted weaker-than-expected fiscal Q4 earnings, marked by a wider-than-expected loss of $1.47 billion at Disney's streaming business.

Figure 1: Prior to his return, Iger was CEO and chairman of Disney from 2005 to 2020, and was executive chairman and chairman of the board through 2021.
(Source: Imaginechina Limited/Alamy Stock Photo)

Analysts speculated that Iger would take a fresh look at how Disney invests in Disney+ and perhaps rework a restructuring under Chapek that led to a division called DMED, or Disney Media and Entertainment Distribution. Announced in October 2020, DMED manages the operations of Disney+, Hulu, ESPN+, Disney+ Hotstar and Disney's domestic broadcast and cable television networks.

Focus on structure and streaming

"We would hope and expect that Mr. Iger examines the investment plans at Disney+ and re-focuses their investment on areas of franchise strength and away from broader general entertainment content," Michael Nathanson, an analyst with MoffettNathanson (a division of SVB Securities), explained in a research note (registration required). "In other words, Disney+ – and Disney's shareholders – could probably do better with fewer end-state subscribers made up of super fans willing to pay high RPU [revenues per unit], which would generate much higher margins."

Iger will be tasked with guiding Disney "through this period of massive secular change" amid the rise of streaming and the negative effects of pay-TV cord-cutting on Disney's TV networks business, Nathanson added. That, he expects, could lead to "deep cost-cutting at ESPN, which should include a review of all the upcoming sports rights in order to more adroitly adapt to these new times."

And Nathanson, like other industry watchers, writes that Disney will be better off under Iger's distributed leadership approach that allows parts of the company to make decisions more quickly.

Richard Greenfield, an analyst with LightShed Partners, tweeted that chances that DMED survives the switch back to Iger are "low," holding that the Disney management team and creative types "did not like Chapek nor the management structure he imposed."

Update: Iger wasted little time in making changes, announcing internally that Kareem Daniel, the head of Disney's head of media and entertainment with close ties to Chapek, would be leaving the company and that DMED would be reorganized. In a memo obtained by CNBC, Iger said Daniel's departure would be paired with a "new structure that puts more decision-making back in the hands of our creative teams and rationalizes costs … Our goal is to have the new structure in place in the coming months." Iger added that "elements of DMED will remain," but stressed that storytelling will be central to how the business is organized.

Iger added that Dana Walden (chair of Disney General Entertainment Content), Alan Bergman (chair of Disney Studios Content), Jimmy Pitaro (chair, ESPN and sports content) and Christine McCarthy (senior EVP and CFO) will work tighter on a new structure that will also lead to a reorg of DMED.

With Iger's return, "[w]e believe investors will value the transparency and return Disney some of its long-lost magic with a stronger narrative driving the stock higher again," explained Nathanson, who upgraded Disney shares to "outperform," with a $120 price target.

Disney shares were up more than 6% on Monday.

Relationship reportedly went sour

Though Chapek was hand-picked to succeed Iger, this in-depth piece at CNBC explores how the relationship between the two execs went south after Iger told The New York Times about his desire to help Chapek run Disney during the pandemic.

Chapek was "furious when he saw the story" because it would keep him under Iger's shadow, CNBC reported, citing unnamed people familiar with the situation. "Iger had postponed his retirement as CEO three times already. Chapek felt he was essentially doing it again, leaving him as a hapless second banana."

Chapek's decision to centralize budget power under Kareem Daniel "irritated several Disney veterans – as well as Iger," the report added.

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— Jeff Baumgartner, Senior Editor, Light Reading