Disney to slash costs after profit shrank in last quarter of its fiscal year

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Walt Disney Co. is preparing for significant cost-savings efforts after reporting less-than-expected profit during its fiscal fourth quarter of 2022.

Efforts will include layoffs, hiring freezes and reduction in spending on content, marketing, travel and other areas, the company announced Nov. 11, 2022.

Layoffs are expected across multiple divisions, including the ABC network and its owned stations and the company’s streaming and film ventures.

After operating expenses, the company’s net income was about $162 million, compared to $160 million year over year. While that is an increase of 1%, it’s not a significant increase and not what Wall Street expected.

Disney stock plummeted after its financials were announced.

Much of the loss is being blamed on streaming operations — including increased losses at Disney+ and lower revenue from Hulu.

All told, its streaming operations lost $1.5 billion in the quarter, $800 million more year of year.

Like many media companies, Disney has been focusing heavily on the direct-to-consumer model of building streaming services. These services, however, have been forced to spend billions on producing original content in order to make them stand out from the numerous rivals out there.

There are signs that consumers are getting frustrated with having to pay monthly fees for multiple streaming services. Companies have countered this by offering lower-priced ad-supported tiers in an effort to make price points more appealing. Disney and Netflix have prioritized these types of efforts in 2022.

Warner Bros. Discovery, formed from the merger of WarnerMedia and Discovery, has already announced plans to merge HBO Max and Discovery+ under a single brand and some analysts expect more consolidation is inevitable.

The one bright spot in the financials was the parks, experiences and products division, which includes its theme parks, cruise line and merchandising. It was up 36% over the year before.

Growth has been fueled not only by people resuming travel and vacation habits after the pandemic, but also heavy interest in new attractions that have been rolled out.

Disney is planning to start marking its 100th anniversary in January 2023.

Below is the memo Disney CEO Bob Chapek sent to select employees.

Disney Leaders-

As we begin fiscal 2023, I want to communicate with you directly about the cost management efforts Christine McCarthy and I referenced on this week’s earnings call. These efforts will help us to both achieve the important goal of reaching profitability for Disney+ in fiscal 2024 and make us a more efficient and nimble company overall. This work is occurring against a backdrop of economic uncertainty that all companies and our industry are contending with.

While certain macroeconomic factors are out of our control, meeting these goals requires all of us to continue doing our part to manage the things we can control—most notably, our costs. You all will have critical roles to play in this effort, and as senior leaders, I know you will get it done.

To be clear, I am confident in our ability to reach the targets we have set, and in this management team to get us there.

To help guide us on this journey, I have established a cost structure taskforce of executive officers: our CFO, Christine McCarthy and General Counsel, Horacio Gutierrez. Along with me, this team will make the critical big picture decisions necessary to achieve our objectives.

We are not starting this work from scratch and have already set several next steps—which I wanted you to hear about directly from me.

First, we have undertaken a rigorous review of the company’s content and marketing spending working with our content leaders and their teams. While we will not sacrifice quality or the strength of our unrivaled synergy machine, we must ensure our investments are both efficient and come with tangible benefits to both audiences and the company.

Second, we are limiting headcount additions through a targeted hiring freeze. Hiring for the small subset of the most critical, business-driving positions will continue, but all other roles are on hold. Your segment leaders and HR teams have more specific details on how this will apply to your teams.

Third, we are reviewing our SG&A costs and have determined that there is room for improved efficiency—as well as an opportunity to transform the organization to be more nimble. The taskforce will drive this work in partnership with segment teams to achieve both savings and organizational enhancements. As we work through this evaluation process, we will look at every avenue of operations and labor to find savings, and we do anticipate some staff reductions as part of this review. In the immediate term, business travel should now be limited to essential trips only. In-person work sessions or offsites requiring travel will need advance approval and review from a member of your executive team (i.e., direct report of the segment chairman or corporate executive officer). As much as possible, these meetings should be conducted virtually. Attendance at conferences and other external events will also be restricted and require approvals from a member of your executive team.

Our transformation is designed to ensure we thrive not just today, but well into the future—and you will hear more from our taskforce in the weeks and months ahead.

I am fully aware this will be a difficult process for many of you and your teams. We are going to have to make tough and uncomfortable decisions. But that is just what leadership requires, and I thank you in advance for stepping up during this important time. Our company has weathered many challenges during our 100-year history, and I have no doubt we will achieve our goals and create a more nimble company better suited to the environment of tomorrow.

Thank you again for your leadership.