Will Disney's New CEO Choice Confuse The Market?

• by Karlene Lukovitz  @KLmarketdaily, February 27, 2020

The choice of Bob Chapek as Disney’s new CEO, following Bob Iger’s surprise announcement on Tuesday that he was immediately stepping down from that post to become chairman, is raising questions among some media and technology analysts.

The focus of the second-guessing is why Chapek, most recently chairman of Disney Parks, Experiences and Products, was selected instead of fellow senior Disney executive Kevin Mayer.

No one is questioning Chapek’s success in driving growth and profits over his 27 years of running the company’s consumer products and parks and resorts businesses.

“Bob Chapek doesn’t fail,” a former high-ranking Disney executive told The Wall Street Journal. “He is incredibly disciplined about doing what it takes to deliver the numbers. He is relentless in that regard.”

What’s puzzling, say some, is why Mayer — whose purview as Disney’s chairman of Direct-to-Consumer & International includes oversight of its multi-platform streaming services — was not picked to head a company that has been stressing its strategic focus on streaming.  

“Disney’s Wall Street narrative the past two or three years has been very straightforward: We’re leaning into streaming video. Value us like Netflix, not like your father’s Disney,” summed up CNBC technology reporter Alex Sherman, in a column posted shortly after the announcement.

“The story has worked. Disney racked up a whopping 28.6 million paying Disney+ subscribers in its first three months. And its multiple has crept higher — not Netflix high, but higher than its media peers. Disney’s forward price-to-earnings ratio is now close to 21. Netflix’s is 43. For comparison, ViacomCBS’s is about 4.”

Media industry insiders “almost unanimously” expected Mayer to be Iger’s heir, and “investors were not impressed” by the Chapek choice, sending Disney’s stock down about 2% in after-hours trading following the announcement, he points out.

While it’s possible that Iger made the successor decision years ago, “choosing the guy who runs parks over the guy who runs streaming is odd because of the signal it sends to investors,” Sherman asserts. “Disney is supposed to be a high-flying technology-based streaming company now. The strategy is working. Not rewarding Mayer, who has spent more than two decades at Disney, is odd.”

Since Iger is staying on as chairman, and both Disney and Iger have said he will now be able to spend more time on “creative” — specifically, the company’s “content creation” —  Sherman and others have suggested that perhaps Iger may now shift to focusing more or less exclusively on streaming, while Chapek runs the rest of the company.

Industry executives are indeed expressing some bewilderment about why Iger left now, what may be happening behind the scenes, why Chapek was deemed the best successor, and how the two men will operate for the rest of Iger’s tenure with the company, confirms Sebastian Blum, a partner at OC&C Strategy Consultants specializing in media and entertainment.

"There needs to be clarity in terms of the hierarchy," Sebastian says. “To explain how that would work would alleviate anxiousness in the market. Meanwhile, the single big challenge is to keep momentum in DTC subscriptions."