Disney CEO Bob Chapek on What's Next For Parks, Movies, and Streaming

Every day, the people of Meta work to protect over 3 billion users around the world.

We are responsible for so many products that so many people rely on. When you have that level of responsibility, you take every single decision very, very seriously. I am Abhishek, and I work on risk and compliance at Meta. We are definitely ahead of the pack here. We invest a lot more. We really sweat over every single detail.

Get the facts at meta.me/risk.

What the pandemic has done for us, maybe one of the few positives, is that with the park closure, we've been able to completely reconsider what that experience is. And we want to make sure that when we reopen, even when we reopen to full capacities, that we're taking into consideration some of the learnings that we've had so that we can really improve the guest experience.

Welcome to the Barron Streetwise Podcast. I'm Jack Howe. The voice you just heard, that's Bob Chapek. He's the CEO of The Walt Disney Company, which is reopening its Disneyland Resort in California at the end of this month. It's another welcome sign that although the pandemic hasn't passed yet, life is slowly moving back toward normal. In a moment, we'll hear from Bob on park changes, the Disney+ streaming service, the future of movie theaters, and what it's like being a newly appointed entertainment chief when the travel industry and much of show business goes from booming to kablooey. Listening in as always is our audio producer Meta. Hi Meta.

Hi Jack.

Meta, did you know that Baby Yoda is not really called Baby Yoda?

Baby Yoda.

Right, from the Disney+ series The Mandalorian.

Right.

He's the same species as Yoda, who first appeared in the 1980 film The Empire Strikes Back.

A Jedi uses the Force for knowledge and defense, never for attack.

But he is not Yoda as a baby. He's a totally different baby. And really, baby might not even be technically correct here. I mean, during the first season of The Mandalorian, he was billed as the Child. But then in Episode 5 of Season 2, we learned that his name is Grogu.

Did you study Yoda facts ahead of your call with Disney?

Okay, well, they're Grogu facts, and yes, I did. I didn't want to, you know, say anything embarrassing. If you ask me later, I'll tell you about Yaddle. Now, she's a female member of Yoda's species who was part of the Jedi Council in The Phantom Menace.

Wow. I mean, I can't wait.

Right. But right now, there's not a minute to spare. It's been a year since we had Disney Executive Chairman Bob Iger on this podcast. And this past week, I had a chance to talk with the man who took over the company to prepare for Bob Iger's retirement.

How are you?

Hey, nice to see you, Bob.

My pleasure.

Bob Chapek was named CEO of The Walt Disney Company effective immediately, just 2 weeks before the World Health Organization declared COVID-19 COVID-19 a pandemic. And right from the start, there was frenzied speculation about what that meant. The timing was weird. It was weird. The timing was not what we expected and not typical Disney.

We would have thought—

Bob previously ran the Parks Division. Some people asked, why did Disney choose him and not the head of streaming at the time when streaming was the talk of Wall Street?

Let me just ask you specifically about the choice of Chapek. We had heard for a while that it might be Kevin Mayer. I think that was sort of the odds-on favorite before, but I wasn't surprised.

Bob had helped turn the parks into an enormous profit driver, and he also had plenty of experience relevant to streaming. For example, he once served as president of distribution for the Walt Disney Studios. Still, there were some fairly strained narratives that popped up in the media in the months following Bob's appointment. One held that Disney rushed the transition so that Bob Iger could go out on top before the pandemic got worse. Another later narrative said almost the opposite, that Bob Iger was still running things behind the scenes. Here's something you realize after following Disney for years: it's ground zero for conspiracy theories. People have passionate feelings about Disney's stories and assets and activities, and sometimes they do their own Imagineering when it comes to guessing what the company's executives are really thinking. So let me just tell you a few things I'm pretty sure of. I'm pretty sure Disney's effective immediately CEO announcement was meant to prevent the kind of palace intrigue around management changes that has popped up now and then in Disney's history. I'm pretty sure Disney has no magical ability to forecast the path of pandemics beyond what public health experts tell all of us. People I talk with tell me Bob Chapek has been firmly in control over the past year. Also, Bob Iger is still executive chairman, and if you have a Bob Iger available when you're trying to run Disney, I have no doubt that you call on him for advice often. Speaking of which, you know who else had to win over the public when he took over Disney? Bob Iger. People said he's no Michael Eisner. Now they call him the best chief since Walt. Now, if you're wondering how things will work out under Bob Chapek, The first-year results are pretty promising. Disney is expected to generate billions of dollars in free cash flow this year, like last year, despite closings at parks and movie theaters and greatly reduced travel. Its Disney+ streaming service has shattered expectations for subscriber growth. The stock price is up more than 45% since Bob Chapek took over. That's 10 percentage points better than the S&P 500 index. Also, by all accounts, Disney World in Florida has operated safely since reopening at reduced capacity last summer. And now Disneyland in California is reopening at the end of April. I asked Bob Chapek, what have you learned in Florida that you can put to work in California on day one?

What we've learned is that it's not just about social distancing. We spent a lot of time on the operation of the park in terms of how can we move people around, how can we use things like barriers, increased cleaning, in order to create a comfortable environment, one that people feel, you know, secure in, that builds that level of trust that we've seen, and also the desire to come back. And I think it all bears out in the guest satisfaction scores that we see since people have returned from the pandemic.

There's a whole ecosystem of advice givers for families planning Disney trips.

Welcome to Disney on a Dime. I'm Tan, this is Eric, and today we wanted to come in and share with you our ideas on what—

how many days at each park do you need to enjoy Walt Disney World? It's a question.

We've got the planning tips, the ride hacks, and the snack knowledge you need to know before you go.

I'm gonna go ahead and look at the kind of the most popular restaurant on my list, and that's the restaurant that I'm gonna book First, can you see Cinderella anywhere else other than Magic Kingdom? No, you can see Sleeping Beauty in Epcot, but I think you can only see Cinderella.

Yeah, I've never seen her anywhere else. So if you have a little girl, yeah, first time going, you're just gonna have to bite the bullet and go to Magic Kingdom.

Under normal circumstances, people can use crowd calendars and statistical forecasts of ride wait times to determine when to visit, which parks to hit on which days, even what time of day to do certain rides. All of that seems little help right now. I asked Bob, for families just now getting vaccines and planning their first vacations in over a year, will the parks be packed this summer because of all that pent-up demand? He says the company had a lot of experience with demand exceeding supply before the pandemic so it's in a good position to manage its reduced capacity now. There are some jarring temporary changes. Visitors wear masks, parades and fireworks are on hold, and Goofy isn't giving out high-fives for now. But there are also some subtle changes for the better for park-goers and maybe investors. For example, before the pandemic, 13% of food orders were made through mobile devices. Now it's 84%. Here's Bob.

What does that do? It improves the guest experience by not having people have to wait for their food. So we're moving much more towards an app-based approach to improve the guest experience as opposed to sort of the traditional standing in a queue.

At Disneyland, the company has also canceled its annual pass program while designing a replacement.

The whole idea of an annual pass is essentially, with some constraints, you come when you want. That's a very unpredictable thing. And so we've implemented a, or will be implementing, a new reservation system that will enable us to better manage and regulate the flow of our guests when they come in through a new annual pass program in addition to that.

Bob says he's, quote, terribly confident that parks will bounce back as good, if not better, than they were before. On streaming, Disney predicted it would hit 60 million to 90 million subscribers for its Disney+ streaming service by 2024, but it's done way better than that. It hit 100 million earlier this year. Here's Bob.

Well, we were very surprised by the rate of growth that we had. We were very confident in our proposition, but I think it caught everybody by surprise, which is why we sort of blew our guidance away. At the same time, we have confidence in the future, and our confidence is really driven by the extraordinary franchises we have and then the extraordinary creative content that is now driven by those particular franchises and the flow of content. And we said 100 new titles per year. That is a really good way to continue growth because in the end, it's really all about the content.

Disney took less than a year and a half to reach 100 million subscribers, and Netflix took 10 years. Wall Street predicts Disney will hit 200 million subscribers across all its services, including Hulu and ESPN, by the end of this calendar year. That could put the company at about 85% of the subscriber base of Netflix by then. So I asked Bob, do you ever extrapolate out in your head about when you might pass Netflix? That's right. I was trying to create a little Hollywood drama of my own. And every once in a while, a chief will go for that sort of question. But Bob, let's just say he rejected my script.

You know, we tend to view our success really as more absolute rather than relative. And, you know, we have goals and targets. As you know, we've increased our guidance quite substantially, as you referenced. And that's our goal. It's really not about chasing a competitor. I don't know that it's a fixed-sum game. I think there's going to be more than one organization that's going to find themselves in the end still standing when this is all over. But we certainly think Disney's going to be one of them. We're thrilled with our success to date, and we think our content's going to drive our success going future.

One of the changes Bob has made is centralizing distribution. That means that instead of each of the company's various studios making decisions about how and where movies will debut, in theaters or on a streaming service, there's now one group that can make sure the decisions stay objective.

And that certainly is important in a world where we're just now starting to recover from a pandemic and everything's sort of jumbled together in terms of not really knowing exactly how fast theaters are gonna come back online and how willing consumers are gonna be to return to those theaters. But more importantly, because of the longer-term dynamics of how do consumers really wanna watch their movies? Do they wanna watch 'em at home? Do they want to watch them in theaters? We think the answer to both those questions is going to be yes.

I'm hoping movie theaters make a full and speedy recovery from here, but what if I'm wrong? Big-budget movies, ones that cost $200 million or more to make, they're designed to recoup that cost quickly in theaters. If streaming takes over, does it change anything about the financial viability of blockbuster-type movies? Here's Bob.

That is the big question. There is a fundamental switch going on now where people have had really no choice for a year and they've had some experience watching movies at home, first-run movies, and they kind of like it. By the way, we believe the great majority of them will go back to theaters, but will it be 100%? Will it be 110%? Will it be 90% or 80%? Does that change either the number of films that you put into theaters or how much you spend on them? I really don't think it's going to change change how much we necessarily spend on them because we have an absolute quality standard of what we do, but it may say, okay, we're only going to put bigger films in theaters, or will we put medium-sized films in theaters.

Disney's term for its streaming business is direct-to-consumer. It's growing quickly, but it's not turning profits just yet because it requires a lot of upfront spending on content to get subscribers in the door. Disney predicts the business will turn profits beginning in its fiscal year ending September 2024, but Wall Street estimates it will be solidly profitable a year sooner than that. Then there's traditional TV. The industry term for that is linear TV, meaning you watch one show at a time. If you ask, "What's on ABC tonight?" you're talking about linear TV. ABC, by the way, is a channel Disney owns. There's a perception among some investors that linear TV is dying as quickly as direct-to-consumer is growing, but in fact Wall Street predicts that linear TV profits for Disney will decline by only single-digit percentages in coming years. If linear is dying, it's dying a long Shakespearean death, and that's important for investors because old-fashioned TV remains enormously profitable. Maybe a lot of viewers will do what I did recently when I moved. I canceled my cable bundle and replaced it with fiber optic broadband service and a bunch of streaming services, but I also signed up for a virtual bundle that acts like a cable package with live channels. That means Disney's collecting linear TV fees on one fewer cable subscriber but also one more virtual bundle subscriber. I asked Bob what he expects for the rate of decline in linear TV.

It probably won't be as fast as people think. We believe that there is good business for us and good experiences for consumers both on direct-to-consumer and on linear. And again, this is part of what we have to figure out both creatively and from a distribution standpoint is how, you know, we put one foot on the boat and one foot on the dock during this transition period. We are making sure that we have plenty of content for our direct-to-consumer initiatives because that is our priority going forward, because we know that's long-term where the growth is going to be. But we have no intention to abandon our linear business now, as plenty of consumers are still consuming our great product that way.

Bob says he's happy with his international streaming growth and with the sports rights he's secured, including a a big recent increase in the number of NFL games that Disney will carry via ABC, ESPN, and ESPN+. All right, Matt, that's enough about TV. Are you, uh, ready to talk about theme parks? All right, take it easy. Keep your hands inside of the ride, please. Now, I asked Bob to tell me about some new things for visitors at parks, and he mentioned Epcot, which I love. It's the one with the thing that looks like a big golf ball. You see, everyone likes to start their Disney World trips by going on 950 rides at the Magic Kingdom, but by day 3 or so, I'm ready for a leisurely stroll around the World Showcase at Epcot. They have a lot of different countries and drinks and food and stores, and the drinks have alcohol, and you can learn about cultures. Did I mention the drinks? I've been known to sip my way from Mexico to France before needing a nap and a swim back at the hotel. So what's new at EPCOT, and does it come with a straw?

Well, we've been working for a while at the reimagining of EPCOT, still true to Walt Disney's original vision, but make it more Disney, more family, more timeless, and more relevant. First of all, we've got Ratatouille, attraction coming, which, you know, has been ready to roll for quite a while, and we're excited. We've got Harmonious, which is a nighttime show on the water that is going to be absolutely spectacular, and a whole new Guardians coaster.

You know, Meta, I looked up that Ratatouille ride. It's in France, which means I might have to skip the beer sampler in Germany to make sure I'm ready for a ride.

Why don't you just make sure to walk slowly afterwards?

You know, I'm going to write that down. There's also something new coming to Hollywood Studios in Disney World called the Galactic Starcruiser. Now don't call it a hotel. Bob says it's where people stay and get completely immersed in a Star Wars experience for 2 days. There's also something called Mickey and Minnie's Runaway Railway. That opened last year in Hollywood Studios, and there's one coming to Disneyland. And Disneyland is getting a new Avengers Campus. That opens in June. And of course, there are new attractions coming to Shanghai, Tokyo, Hong Kong, and Paris. Here's Bob.

So around the world, we've got pretty much new things, and we have not taken our foot off the gas during the pandemic on new development that's going to help us not only bring people back to parks, but also once we return to normal, make sure that they've got new experiences that keep coming back year after year.

But Bob, when you put this new stuff in parks, every once in a while you have to get rid of something. And when you get rid of something at a Disney park, it's like you become the supervillain, right? Because someone out there has a deep attachment to that attraction that might not match its attendance or whatever. How do you manage that? And by the way, since we're on the subject, Country Bears Jamboree, Bob, is it safe for now?

So yes, it's— we have the tremendous benefit of having great fan affinity. There's fan affinity that you can measure and there's just sentiment. Sometimes the two don't match. Sometimes there's a difference between how often fans go into an attraction and what they feel about it as voiced in social media. And we tend to follow the objective measure, which is how often do they really go into an attraction. Walt Disney said Disneyland will never be completed as long as there's magic left in the world. And we believe in that. And we're living by his mantra. So we'll continue to make improvements when we do, update things when they need to be updated, replace them when their affinity starts waning, and do what's right for the overall business and be resilient to some of the criticism that we get when we do decide to take something out.

One of the last things I asked Bob was, what's your favorite part of the job?

Content and storytelling really is at the heart of everything that we do at Disney. And one of the great things of that is shepherding through the system our franchises so that everything that we do has an element of being, you know, across line of business, across time, and across geography. It's just amazing. You know, you see these compilation videos of somebody singing Frozen song around the world in different languages and realizing the impact that that initial piece of content had. So it's the extension of the franchises across all our businesses, across all these territories, and over time with sequels and different, like we talked about theme park implementations. And by the way, new cruise ships, putting them on new cruise ships and theming cruise ships. That's the big part because that's what makes Disney different. It's creative, it's storytelling, but it's not limited only to the big screen.

Thank you, Bob, and thank all of you for listening. Meta Lutzow is our producer. Meta, I know I promised you some more Yaddle facts. Did you know that according to Wookieepedia, she was half Yoda's age in the movies and that she was a master of the Jedi art of Moritro that can slow an opponent's body functions?

Oh, we're out of time. Speaking of slowing things down, sorry.

Sounds like I may have mastered the art of moritro.

Subscribe to the podcast on Apple Podcasts, Spotify, or wherever you listen to podcasts.

You can't tell at all that you're laughing, Jeff.

If you listen on Apple, write us a review. If you want to find out about new stories and new podcast episodes, you can follow me on Twitter. That's @JackHough, H-O-U-G-H. See you next week.

At Janus Henderson, we strive to deliver better outcomes through insight-led investing, innovation for clients, and a partnership approach that's core to our identity. I'm Jessica Liancini, Head of Fixed Income Client Portfolio Management. I am passionate about my role in investments. It allows me to partner with our clients, simplify fixed income, and support them in achieving better outcomes for their clients. Janice Henderson. Investing in a brighter future together.