Iger/Peltz: pre-emptive cuts help House of Mouse win by a whisker

Everyone loses in a proxy fight. So it is a good thing Walt Disney and Trian’s Nelson Peltz have set aside their differences. The activist investor is dropping his campaign for a seat on Disney’s board after the entertainment giant unveiled a sweeping restructuring.

For Bob Iger, Disney’s recently reinstated chief executive, smoking the peace pipe with Peltz may be the easy part. The hard work of bringing the magic back to the Magic Kingdom is just beginning.

Iger deserves credit for coming out swinging. The 71-year-old’s plan to cut costs by $5.5bn, eliminate roughly 7,000 jobs and reinstate the dividend by the end of the calendar year is what investors wanted. The moves made it hard for Peltz to rally shareholders behind him in a proxy fight.

Do not feel too sad for the billionaire activist. Disney shares have risen by 18 per cent since he announced his campaign.

Cynics will say Iger is merely doing what Peltz was agitating for. Of planned cuts, $3bn will result from reduced TV and film production. The remaining $2.5bn will come from operational cost cuts. Assume Disney hits forecasts of $90bn in revenues and expenses stay the same. The operating income margin should then rise to over 20 per cent this year, compared to 15 per cent in 2022.

Iger’s core challenge is to make streaming profitable. The direct-to-consumer business, led by Disney Plus, has lost $8.6bn over the past three years. Cutting content spending and increasing prices will help. Rivals are doing likewise. This should lessen the risk of subscribers defecting.

Still, it will take time to right size the business and match Netflix’s 18 per cent operating margin. Disney’s booming theme park division will help fund the transition. It had another big quarter, with revenue and operating income rising over a fifth in the final three months of last year.

The question of succession remains. Iger is back at Disney for two years, supposedly. He needs to do a better job of finding a successor than the last time he hung up his mouse ears.