Disney’s Tragic Kingdom

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Ethan Wu (0:36)

Thank Pushkin, things are getting weird at Disney. The House of Mouse is getting in to the bedding business. They've gotten their breaking case of emergency CEO back out of retirement. And in general, it's been a tough couple of years for Disney, the stock has been cut in half since 2021 Today on the show, we ask, how's Mickey Mouse doing? Is he all right?

This is Unhedged, the Markets and Finance show from the Financial Times and Pushkin. I am reporter Ethan Wu, joined today by Deputy Corporate Finance Editor Ortenca Aliaj, whose experience with Disney began when the Berlin Wall fell. Is that right?

Sort of?

Ortenca Aliaj (1:20)

When communism ended in Albania, yes, my parents bought me a book called Hirushia when I was about three, which is the Albanian name for Cinderella.

And I was obsessed with this book and learned it off by heart. So that was my first experience with Disney.

Ethan Wu (1:38)

You recited it at school, right, to kids that did not want to hear it.

Ortenca Aliaj (1:41)

Yes, I read it so much.

Ethan Wu (1:43)

You sounded very guilty to admit that.

Ortenca Aliaj (1:45)

I'm cooler now.

Ethan Wu (1:48)

Ortenca is both cooler and Disney is a great capitalist icon with international renown.

However, it's not been the best couple of years at Disney. Fast forward from your childhood to 2023 and this unbridled symbol of capitalism, they're getting into the betting business, into the gambling business. ESPN, which is owned by Disney, has done this deal with Penn Entertainment, which is a casino chain, to have exposure to the sports betting industry. It's really fast growing, but there's kind of a whiff of desperation to this deal too. And there's real reputational risk for Disney. I mean, this is something Iger didn't want to do, right?

Ortenca Aliaj (2:22)

Yeah, so this is a very unusual deal for Disney and particularly for Bob Iger, the current CEO who has made his comeback, basically looking to solve the problems that Disney has. And one of the ways that he's trying to do this is to find ways to generate cash, hence this unusual deal.

Ethan Wu (2:41)

And it's not like Disney has any shortage of problems, which I think goes some ways to explaining this arguably slightly desperate move.

And so we've sort of broken those problems down into the decline of linear TV, Disney's huge debt pile, the streaming wars, and a lack of creativity, a lack of that special something. Let's start with linear TV, which we should say for all the Zoomers out there what it is, probably.

Ortenca Aliaj (3:04)

Yes, for all the other people listening.

Ethan Wu (3:05)

I never really watched linear TV, to be honest with you.

Ortenca Aliaj (3:07)

Me neither. But linear TV is where you basically paid a monthly fee for TV and you had to watch it from start to finish and you had to put up with ads.

This was a big cash generator for Disney because you're effectively making money whether someone watches it or not. So what's happened is people don't watch cable anymore and don't want cable. And it has pushed Disney into the streaming wars.

And these streaming wars are dominated by the likes of Netflix and Amazon and Apple. And particularly those two last companies have a ton of cash they can burn. Disney doesn't. And so Bob Iger has to find a way to make streaming profitable whilst competing with these huge behemoths.

Ethan Wu (3:55)

Yeah, yeah. And we'll get more into streaming in a second, but I want to make a big picture point about linear TV, which is like, it's kind of insane if you think about it, like from the vantage point of 2023, in the sense that what every American household was doing was paying like a hundred bucks a month for a bundle of channels where you didn't watch most of them.

And even on the ones you did watch, you had to watch ads, right? It's not a great deal from a consumer perspective.

Today, the offerings are like you buy a la carte what you feel like buying. A lot of them, you don't have to watch ads, but linear TV was in some ways like a big transfer of wealth from consumers to businesses, and every household was on board with it. And I think people eventually realized it's not such a great deal when other stuff's available on the internet.