Disney’s box office woes increase pressure on CEO Bob Iger and studio chief Alan Bergman

It is rare for Disney Chief executive Bob Iger admits his company has made some creative missteps. So when he does, it’s probably wise to pay attention.

“Looking at our overall production, meaning the studio, it’s clear that the pandemic has created many creative challenges for everyone, including us,” Iger said last week at the conference call on Disney’s results. “I always thought that quantity could actually be a negative when it comes to quality, and I think that’s exactly what happened, we lost a little bit of focus.”

Iger followed his comments with a new mandate: Disney will make fewer movies. It’s a similar strategy to the one Iger adopted when he first became CEO of Disney in 2005. At the time, Disney’s animated and live-action studio divisions were grappling with a series of failed films, notably “The Alamo,” And “House on the beach” And “Pooh’s Heffalump Movie“.

Iger’s solution was then to cut 650 studio jobs and cut its annual film production in half, releasing only a dozen films each year. He also has acquired Pixargiving Disney an immediate infusion of quality films and a brand of storytelling that rubs off on Disney’s traditional animation studio.

Iger appears to be re-running the playbook for 2024. After flooding Disney+ with movies and other new content for several years, Iger is strategically cutting back to accelerate free cash flow generation and profitability. Disney removing animation tasks in June – the first significant reductions in about a decade – as part of a broader round of job cuts. After releasing four Marvel Cinematic Universe films in 2021 and three in 2022 and 2023, Disney will only have one in 2024 – “Deadpool 3.” There hasn’t been a Star Wars movie since 2019’s “The Rise of Skywalker.”

In 2006, the acquisition of Pixar quickly improved Disney’s film quality and box office results. The animators’ blend of technology and storytelling rubbed off on Disney’s traditional animation unit, eventually leading to hits such as “Frozen” and “Zooptopia.” This time, Disney will have to improve organically, pressuring Iger and studio head Alan Bergman to show results like activist shareholders Trian Partners and ValueAct threaten to put pressure on management and the board of directors.

“I’m happy with the direction we’re heading in, but I’m aware that our performance, from a quality perspective, wasn’t really up to the standards we set for ourselves,” said Iger last week. “And so working with the talented team at the studio, we are looking and working to consolidate, that is, to earn less, to focus more on quality. We are all rolling up our sleeves, myself included, to do exactly that.”

Iger noted that the Disney animation studio’s next film, “Wish,” which stars Ariana DeBose and debuts in theaters Wednesday, could kick off a string of lasting hits for Disney. Early ticket sales suggest “Wish” grossing $55 million for the Wednesday-Sunday period, including Thanksgiving. That follows previous Thanksgiving openings from Disney films, including “Ralph Breaks the Internet,” “Coco,” “The Good Dinosaur” and “Tangled,” but is higher than the $18.9 million brought in by “Strange World ” last year and to the $40.6 million of “Strange World.” “Encanto” in 2021, according to Comscore data.

In 2024, Disney will release Marvel’s “Deadpool 3,” Pixar’s “Inside Out 2” and “Mufasa: The Lion King,” the prequel to the 2019 remake of “The Lion King.” All three have a blockbuster pedigree, based on the box office performance of their previous films. “Deadpool 2” grossed $785 million at the worldwide box office. “Inside Out” grossed $859 million. ‘The Lion King’ grossed $1.6 billion in 2019, surpassing Disney’s ‘Frozen’ to become the highest-grossing animated film of all time – if you consider computer generated animals as animation.

Still, there’s no denying that the studio has struggled in recent years. In addition to last year’s “Avatar: The Way of Water”, acquired as part of the Disney program $71 billion deal for majority of 21st Century FoxDisney hasn’t made a billion-dollar gross since the last Star Wars film in 2019. Sony produced and distributed “Spider-Man: No Way Home“, which grossed $1.9 billion, although Disney’s Marvel Studios served as co-producer.

As a reminder, among the 2019 releases, Disney made seven of the nine films that grossed more than a billion dollars worldwide.

While “Elementary” And “Guardians of the Galaxy Vol. 3” have enjoyed success in theaters, Disney’s recent box office record has been filled with duds. “Lightyear” and “Strange World” have been duds in 2022. This year, “The haunted mansion” And “Indiana Jones and the Dial of Destiny” bombed for Disney. “The Wonders”, according to the worst opening weekend for a Marvel Cinematic Universe film, is shaping up to be a major disappointment. “The Little Mermaid” and “Ant-Man and the Wasp: Quantumania” failed to meet analysts’ expectations for ticket sales.

“We are proud of the box office successes we have had over the past two years, but some titles have not met our high expectations,” Bergman told CNBC. “We have reduced the quantity of our production and are incredibly focused on the quality of our next slate and it is our responsibility to execute as we move forward. I believe we are in a strong position for the future given our world class brands, filmmakers, talents and creative teams.

Disney houses its studio operations in a division it calls “Content Sales/Licensing and Others.” This includes Disney’s theatrical businesses as well as home entertainment and the sale of film and television content to other third-party subscription television and streaming services.

In his most recent fourth fiscal quarter, Disney reported an operating profit loss in that division of $149 million, which it attributed to “the performance of “The Haunted Mansion.” » During its fiscal third quarter, Disney reported a “Content Sales/Licensing and Other” operating loss of $243. million. A quarter before, Disney lost $50 million and $98 million in the previous quarter.

The last time Disney reported an operating profit gain in the “Content Sales/Licensing and Other” segment was during its second fiscal quarter of 2022 – an earnings report released in May of that year, when Iger was not at the company and Bob Chapek was CEO. During that quarter, Disney reported operating income of $16 million, down 95% from the previous year.

“At the time the pandemic hit, we expected our revenue to increase dramatically,” Iger said. “Getting the studio back to the level of success we were accustomed to pre-pandemic (is) one of the building blocks of the business.”

Disney is hosting a town hall on Nov. 28 with Iger and his four division heads: Disney Entertainment co-presidents Bergman and Dana Walden, parks and experiences chief Josh D’Amaro and ESPN boss Jimmy Pitaro. The quartet led by Iger constitute the four people most likely to succeed him as CEO. Disney targeted early 2025 as the likely time to name someone as Iger’s heir apparent, CNBC reported earlier this year.

As Iger shifts Disney’s focus from quantity to quality, the pressure will be on Bergman to ensure Disney produces films worthy of the company’s esteemed brand. Bergman has held senior management roles in the studio division since 2001, but is not a creative executive by experience, having started as the unit’s chief financial officer. He frequently clashed with Chapek and Kareem Daniel, then head of Disney’s media and entertainment division, over the company’s decision to strip budgetary power from studio executives — a decision Iger reversed earlier this year.

Bergman has built a strong track record of success during his years as division president, including “Avengers: Endgame,” “Star Wars: The Force Awakens,” “Frozen,” “The Frozen 2” and “Toy Story 4”. It will continue to rely on many of the same creative leaders who produced these hits, including Marvel’s Kevin Feige, LucasFilm’s Kathleen Kennedy, Walt Disney Animation Studios Chief Creative Officer Jennifer Lee and Pixar’s Pete Docter.

However, Alan Horn, former chairman of Walt Disney Studios, left in 2020 – coinciding with Disney’s crisis.

If Disney’s shift from quantity to quality doesn’t generate better box office numbers, Iger could begin to face pressure from investors and collaborators to make management changes.

This could put Bergman in the hot seat.

–CNBC Sarah Whitten contributed to this article.

Disclosure: NBCUniversal is the parent company of Universal Pictures and CNBC.