Numlock Sunday: Julia Alexander on Disney upgrading to Bob+
Who's the leader of the club that's made for you and me? Bob.
By Walt Hickey
Welcome to the Numlock Sunday edition.
Many longtime readers may remember her newsletter all about Disney called Musings on Mouse, and when I heard the news that the Disney company was canning its CEO and bringing back the former one I thought it was a perfect opportunity to have her back on to talk about one of the most important companies in American media.
We spoke about Bob v. Bob, Avatar, how movie distributors accidentally trained audiences over the course of the pandemic, and what’s next for the Mouse.
This interview has been condensed and edited.
Julia Alexander, thank you so much for coming on.
Thank you for having me.
Many folks from this newsletter would know you for your work at a previous newsletter that you ran called Musings on Mouse. Since then, you work at Parrot Analytics, which is very, very cool, as well as you have a column at Puck.
One of the reasons I really wanted to have you on was because there are few people, if any, that I know who know more about the Walt Disney Company than you. This last week we had a huge news break that we were getting a new Bob, that the previous Bob that was replaced by the current Bob was returning. Why is Bob Iger back at Walt Disney Company?
I mean I love that our new Bob is the old Bob. This is the never-ending game of Bobs at the Walt Disney Corporation.
There are a few different reasons why Iger is returning. If we break it down into a couple of silos, Bob Chapek, who was CEO for close to three years, he had lost the trust and I think, arguably, the respect of a lot of his closest executives, who were once Iger's executives. He had lost the trust and, I would imagine, respect of the board in the way that he handled certain things, like the controversy over the “Don't Say Gay” bill in Florida, over the streaming segment and the cost and losses that he was running into, and with the fights with talent like Scarlett Johansson that led to some discontent within the agencies and the talent community.
So Disney's inner circle at the executive level, I think, were looking to replace Bob Chapek for a long time. But why is Bob Iger back? And the answer is basically that he's the only guy that they can think of to come back and run Disney right now. He's the only guy who knows Disney, and especially the Disney that he created, in and out. He's the only guy they know who knows the corporation and what's best for the corporation, while also being great with talent.
And I think just bluntly, when we look at the executives in the Walt Disney Corporation right now, and then potential executives outside of Disney who you could think of to run the company, there really isn't anyone who stacks up the way that Bob Iger does. So that's why he's back from Disney's perspective.
He's going back because he wants to fix his succession choice. He doesn't want his legacy to end up being leading to Chapek. And two, I think if we believe, as he does, that the biggest launch of his career and his tenure as CEO at Disney the first time around was the launch of Disney Plus and the move from linear and digital really into streaming, he really wants to make sure that he sets that strategy on the correct path again for whoever takes over next.
I for one, was shocked that the Walt Disney Company was resorting to a nostalgia play in a time of need.
That's a good way of putting it.
The movie side, you can disagree with this or correct me, but the vibe is that that kind of stuff tends to run itself at Disney. Whereas the CEO is very directly involved in two major moneymaking operations for Disney, which is the parks and the streaming service. And would you like to talk about maybe how those have gone over the past couple years?
With all the focus on Iger, I think it's easy to point a lot of blame at Chapek. But Chapek had two things going against him, to an extent. One, on the streaming side, he inherited a lot of what Bob Iger and Kevin Mayer set up. He added to it, and we're going to get into this in a second, that I think was a disastrous addition. But he inherited that aspect of it, that he had to kind of see through.
And two, he came into being CEO just before the pandemic started. All of the major businesses that we think of with Disney — the parks, the cruises, the theatrical releases, all of those — were severely impacted by COVID. And I think he did navigate the Walt Disney Corporation through a really intense period. I think he did an exceptional job, to that extent.
If we look at parks, parks revenue is back up, the parks are full, they're sold out for major events. He's really figured that side out, and this makes sense. He came from parks. Parks and experiences was his area of expertise.
When we look at streaming, I think the biggest issue that he did with streaming per se was before Bob Iger left and stepped down: He created a target of 60 to 90 million subscribers by the end of 2024. Now this was before COVID, and before a period of acceleration; this was with less competition in the space. But that was what he was saying, he says, "We're going to hit this."
A core rule of business is you don't put out anything that you're not confident you're going to hit. So you put out something that you're pretty confident in. That's a reasonable assumption based on linear activity, based on the kind of marketplace globally, and especially the domestic marketplace, if you even factor increased competition to what to expect to give to shareholders. It also gives you a way to do this without having to raise prices exponentially, without having to worry about taking on exponential costs.
What happens is Bob Chapek comes in, COVID has accelerated cord cutting and streaming adoption, and he says, "We're hitting a target of 230 to 260 million Disney Plus subscribers by the end of 2024." Now, depending on what range of math you want to do, that either triple or quadruples the forecast that Bob Iger and Kevin Mayer had given.
There's no reason to do this! The street does not care if you meet your goal and you've tripled it, or if you meet your goal by doubling it, or if you've increased it by one and a half. They want to know that you are setting targets, and they want to know now that your business is profitable, or is driving strong revenue and is going to be profitable.
With Chapek, while the revenue was dropping in recent quarter, you also saw an increase in operational cost rates going from $0.8 billion to $1.5 billion in the span of a year, and revenue was dropping year over year. That's a really concerning feat, especially when Wall Street is looking at increased competition and inflation, and the idea of, is your streaming service actually going to generate revenue? Especially at a company like Disney, where you make as much on the profit margins of cable. As the linear business is shrinking, and that means your foundations of business are shrinking, you need to make sure that that new business is really growing in a way that the street believes in. So I think that was Chapek's big fall.
Everything else, if we look at the earnings, media networks decline. No company is going to be able to say, "Well, we got a solution for that." The linear base is declining, and that's unfortunate. ESPN is still able to charge strong affiliate fees to be carried, so they're in a really good position there still, even though ESPN does have to transfer to OTT at some point. Parks are good, cruises are good.
It's really the streaming business. When you said multiple times that we are becoming a streaming business, and that is the only input that we are focusing on, the rest of the output tends to lose its shine in the eyes of the people who really matter when it comes to stock pricing, and everything else around that.
And then, you lose the trust of the creative community. If you lose the trust of the creative community and the street, what is Disney? I think this is all of these compounding issues that lead to why Iger works for Disney, where Chapek doesn't.
I think people tend to remember the Scarlett Johansson kerfuffle as well as all that, but he did seem to lose a lot of constituencies both within and without the company that a CEO needs to maintain.
Yeah, here's the thing about Bob Chapek. Bob Chapek to me always seemed, and this is ironic as we consider the street, he was always a pro-corporation guy, and the creative side supplemented it. His whole thing was like, "I love the Walt Disney Corporation, and the creative community contributes to the product that we produce."
Where Bob Iger has really succeeded as a CEO of a company like Disney, and this goes to the power of his EQ, of his Emotional Intelligence, is that he is someone who always put creativity first, and the business was supplementary.
Now, that does not mean that Bob Chapek did not care about creativity, and does not mean that Bob Iger does not care about business. It is just their approach to it. What Bob Chapek's approach really works within is a world like finance, a world like tech, where the product is the main thing. You're working with engineers, you're working with extensive data, to get the best product out. In that way you're making a good product that people are using, and they're engaging with, but it's not a thing built out of adoration.
Companies that can do that really well are rare. You have a company like Apple that has a Steve Jobs and a Jony Ive partnered with a Tim Cook or a Phil Schiller, whoever it might be, where you have both left and right brain working together harmoniously.
Iger understands that the Disney flywheel is not necessarily built around one product, or two products, or three products. It is built around a never-ending domination of adoration and attention and affinity, the three A's as I call them, for all of Disney's different brands. The only way to ensure that that love continues is to introduce children — because it's multigenerational — is to introduce children to movies and TV shows they love. That's good quality, that's wholly dependent on creative talent, and experiences they love, and that the imagineers are creative and ingenious in their own way, of course, at the parks.
And so you build all these things, but it's built around this concept of "well we need to make sure that talent is building the best brand that we can with Disney." That's why Kevin Feige is the most protected person in Hollywood. It's like Kevin Feige has built the Marvel that kids love, and Bob Chapek understands this and they've made a very good business out of it.
I think that's part of the big reason Iger comes back, and Iger fixes inroads with the talent community. People who want to work with Iger, people who might be going to work somewhere else decide to come back. Whoever might be the creative executives are happy to report in to Bob Iger, and they're not going to leave and go somewhere else, to a Netflix or to a Warner, or whatever it might be.
So it's crucial to having this guy. The last thing I'll say on this is like Chapek is a very data-heavy guy. Iger obviously loves data as well, but Chapek is data, data, data. Data's great. I obviously work for a data company, I love data.
I'm fond of data, yeah.
Yeah, no problem with data.
But data exists as a lighthouse. Data is a way to shine light on areas of opportunity. We call this white space. It's an area to shine a light on dangerous paths, that would be oversaturation, that would be things that don't make sense to your bottom line. It exists mainly to make sure that the captain gets that ship safely into the harbor. The captain in this scenario is your creative directors, and the trust of the passengers are people who want to go watch those movies and TV shows. So you have to make sure that the data is there to support creative endeavors, and to help direct creative endeavors in a way that doesn't stomp on creativity, it adds to it, it supplements it.
I think that's what the creative community sees in Iger, versus a Chapek.
That's interesting, yeah. I think that Iger always got that in order to sell a million yellow dresses a year, you do have to toss someone the keys and let them make Beauty and the Beast, right?
I want to just real quick talk about two of the largest of those creative products this year. And we just had Wakanda Forever come out in cinemas, came out a little bit more muted than the original, but obviously there are a lot of reasons for that. Then Avatar 2 is coming out, and I am endlessly fascinated by this movie, and I know that you've been following Disney for years, and that's been a key thing on the back burner for a long time that very much could be approaching the front burner. What do you make of their current two big tentpole films?
I think Wakanda Forever, it's performing well. It's not hitting Black Panther numbers, but I think that speaks to the fact that the global box office in 2022 is still down about 35 percent compared to 2019. The other thing that the pandemic does is accelerate the theatrical trends. This is a huge debate with people all the time. There's this whole chicken versus egg scenario. If you don't put movies in theaters, how can you argue that the demand isn't there, if you don't give people a chance to go see them?
But if we take into account what really works well with theatrical, one, do I have to go see this right now? Whether it's for spoilers, whether it's because I'm so excited, whether it's to be part of the conversation with the culture, that's one.
Two, do I have to see this in theaters because it takes advantage of technology that I can't get at home? Especially when home television and home audio has gotten so extremely good, that to go to a theater is really special.
Three, do I need to watch this with people? Do I need to feel like I'm really having this moment of, "Oh, I really want to hear everyone else's gasps, and their cheers, and their laughter”?
The best company that understands all three of those is the Walt Disney Corporation. They get it most, and Marvel and Star Wars are the movies that really come to mind when we think about that. If we look at Wakanda Forever, I think that movie is a great example of proving that there is an audience even in a declining theatrical customer base. That there are still these groups, a mass amount of people who are going to go out and watch a movie like that. I think it speaks well to where Marvel Studios is headed.
I think the bigger issue with Marvel Studios is that it's entering a bit of a lull, and this happens. This happens with any type of product that is multigenerational, and that you're trying to build franchise out of for many, many years. If we look at this thing I have developed alongside a pal, a guy named Matt Ball, we've developed rules for creating a successful franchise to last many, many years. Part of that is how do you reformat what you're doing, in order to ensure that it feels new for an entirely different generation? Marvel's hitting that point, they're trying to figure out how to make this transition period work.
On the Marvel front, business as usual. Phase Four has seemed stronger week over week, though first week to second week declines are a little bit concerning. I think that those speak to some of the quality of the films. I think it speaks a little bit to this messy transition period that people are still trying to figure out. I think it speaks to the fact that people are not going to theaters as much. There are a bunch of compounding factors.
But the Avatar side, I think the most interesting news with Avatar 2 is that it's going to theaters in China, which is especially key. If I remember correctly, China to made up something like 20 percent of Avatar's total box office revenue. China is a massive, massive player for Marvel. It's why Disney plays very well with China, or has in the past.
Avatar's a really interesting conversation, because when the first movie came out, that movie took advantage of everything that we were just saying, with what makes it a good theatrical movie. It was, people decided they had to go see it right away, because everyone was talking about it. It took advantage of 3D technology, and really well, at a time when 3D technology was still pretty new. And you wanted to watch in the theater with people, you wanted to see people experience it.
Does Avatar 2 hold up to the same excitement as the first Avatar? Here are my two rules, never be against James Cameron, for the most part.
Never bet against Cameron. And two, this movie is going to do well even if it's terrible, because people are going to go watch it, because it's been how long? Twelve, 13 years. It's been so long since the first one. This movie's been in development for a decade. It has that level of like, "Well, I'm going to go see the new Avatar movie no matter what." I think the bigger question is what happens with Avatar 3?
The other thing that we're seeing happening in the theatrical space is that all these major companies have pursued IP, and then therefore pursued longer plays. You've seen a lot of them kind of declare these four to five big movie goals. You see it with Fantastic Beasts, you see it with The Hobbit, you're seeing it with Hunger Games. They all have these massive, "We're going to do four to five movies, and we're going to kind of do it from the get-go."
The issue with that is that you really need kind of consistent demand, and really increased, incremental demand between the first movie, second movie, third movie, to make sure that we get to the finale. You built up that audience. I mean key example, obviously Harry Potter, great example. Star Wars, right? Great example of these things working in the past.
But a great counterexample is also Harry Potter, because Fantastic Beasts completely screwed that five-movie plan up.
A great counterexample is also Star Wars, where you should look at the sequel trilogy, right?
The idea is, and I think James Cameron actually just came out in an interview with GQ and said this, or Esquire, and he said, "This is going to be the most expensive movie we've ever made." This movie's going to have to be the fourth- or fifth-highest box office grossing film, in order to break even, or to make decent revenue for this company. This is a big bet, and it could lead to us not doing a third or fourth or a fifth.
I think this is the conversation. Is the second movie 13 years after the first one came out going to do well, because there's just natural interest? And we'll see that week over week, and then over the course of the first four weeks drop in box offices, that'll be especially key, along with the cinema score.
What the second movie does for a third movie really sets up a world in which Disney has to explore. Like, "Shit, we bought all of these Avatar movies, we acquired them, they're a big part of our theme park. We're trying to figure out how we turn this into a flywheel." It's going to be wholly dependent on the creative side of it.
We'll see what comes of that. I mean as far as theatrical goes, Disney's had a bit of a rougher year at the box office compared to Paramount, which has just had a wildly successful year.
But Disney has franchises people love. It's got the Disney brand, it's got to start putting kids' movies back in theaters. It's got to start bringing families back out to theaters, the way Universal did with Minions. There's some stuff that they have to do along those lines, and they have to refigure out studios. But I'm also not concerned yet about the Walt Disney studios, from a revenue perspective.
Yeah. I think that there was a David Sims piece from The Atlantic, basically just listing the bona fides of Disenchanted, and being vaguely just shocked that thing wasn't actually released in cinemas, and it was just kind of dumped off on Disney Plus.
I wrote a piece a few weeks ago over at Puck, I declared Hocus Pocus 2 the quintessential streaming movie. Sonny Bunch who is at The Bulwark, he is a very smart guy, I was on his podcast and he said to me, "I think when we think about what makes a really good streaming exclusive movie, it's kind of like the Adam Sandler Netflix movies." They're not movies that you would ever go pay to watch, because you kind of know they're going to be bad going in, but you're going to put it on Netflix that weekend because you're like, "Why not?" It's there, right? In our minds it's free, even though we're paying monthly for the service.
Disney is a global theatrical business. They very rarely release things domestically if they're not going to release it globally. If you look at nostalgia for Hocus Pocus 2, that is U.S.-based, that is not global. If you look at what the found money on that movie is going to be at the box office, it's not especially high.
If you model it out, if you look at what the revenue is that movie is going to bring in at the box office, compared to what the value of adding it on Disney Plus right through Halloween does, heading into a period where advertisers are very interested in engagement, where Disney's trying to make sure that people don't churn ahead of a price increase, it's a much stronger value.
It's a much stronger value on Disney Plus.
I did say though in this piece, because everyone yells at me, that I don't think every movie should go to streaming services. I think 95 percent of film should go to theaters. I think what Disney is going to do that Chapek was kind of experimenting with, and I think Iger to an extent will also experiment with, he'll just handle it better with the creative community, is which of these movies are we going to bring to Disney Plus, or to Hulu, because that makes more sense for us, versus what are we going to bring to theaters?
Because there are movies that make sense for streaming. I think a great example was Hamilton, because there's no international play for an American musical about an American founder, that's a Fourth of July play.
Then you just see stuff get dumped off, like Disenchanted. I feel like you pointed this out a bunch, that Pixar's just come on the Direct to Streaming video arm. It sucks, because they make really good stuff.
This is a huge conversation that a few people have brought up, but I think more people should bring up, I try to bring it up pretty often. We have trained audiences to expect things on streaming very quickly.
What happened with COVID, right? The major thing that happened with COVID was that it accelerated a trend that would've taken 10 years, and it brought down it two years. The most important of that was that the studios understood, that like 95 percent of their films make 98 percent of their revenue within the first 30 to 45 days. To be in a theater for 70 days means you end up taking a little bit of a cut, because you're paying for the screens, you're paying to put it out there, you're paying for last run marketing to have people go to theaters, and they're not going to see it.
What they did, as the exhibitors got desperate and the studios had more power, they said, "We want to be in theaters for 45 days, and then we were able to take it off." And AMC and everyone said, "Sure, fine. We'll agree to that. We just need movies."
Why did they do that? All of them have streaming services. So they said, "Great, we can have this in theaters for 30 to 45 days, and we're going to bring it to Peacock, we're going to bring it to Paramount Plus, we're going to bring it to Disney Plus, we're going to bring it wherever. That's our whole goal."
What that did was trained a bunch of people to go, "Oh, I'm really interested in seeing this"; they're going to go the first or second week, and if they do that, awesome. If they don't, by that time, they are halfway to the point where they're like, "I can just watch it on my streaming service at home, and it's fine. The conversation's died down. It's okay."
We've trained audiences to expect certain things for free. We put movies on streaming services for free, and we train them to expect, "Oh, well this is the type of thing I might get for free." What Disney did is Disney trained a bunch of audiences to say, "Well this is a Pixar movie, and I've gotten a bunch of these for free on Disney Plus over the last few years. Why would I go see something in theaters again?"
I'm not saying that if they were to put a Pixar movie in theaters, nobody would go. I still think families are going out to theaters, they want to go to theaters more. They want to bring their kids out. Pixar is still the ultimate kids' brand. Pixar movies would do very well in theaters, and I think Iger will absolutely bring Pixar movies back. But we have trained audiences, and we don't know how detrimental that training has been yet, because we still need more data to collect, to analyze it.
That's a conversation that we really should be having. It wasn't necessarily Chapek's fault per se. He has whole teams that are recommending him stuff, in the way that Warner Media did their Project Popcorn thing in 2021, simultaneously releasing on HBO Max and theaters.
You have teams who are analyzing and providing strategy, and running models, and running scenarios, and trying to figure the best case out. And I don't think Chapek necessarily made a bunch of mistakes, I think Soul on Disney Plus at Christmas in 2020 made a ton of sense, because nobody was going to theaters and Disney Plus was a year old. That makes a ton of sense.
But something like Turning Red, when people are going back to theaters, families are going back to theaters, they want stuff, and it's a great Pixar movie that found a huge audience online? I would've brought that to theaters, even if it was just 30 days, 45 days. I would've brought that first. And I think that's what we'll see more of with what Iger does.
Well, you've been so generous with your time. I want to be able to let you go. I guess before you split, why don't you tell folks where can they find you? Where can they read your work? I know you've got a recurring column. I know that you do amazing data analytics, and all that kind of stuff.
Yeah, so my full-time, my main job is I'm the Director of Strategy at Parrot Analytics. You can go to Parrot Analytics, you can contact us there.
I work with different clients on different teams across programming, distribution, whatever it might be, strategy, financial planning and analysis. We just try to help them with macro topic, including things like, should we continue to release the vast majority of our films in theaters? How do we develop franchises? What's the type of content that we should be acquiring? What's the type of content we should be licensing? So if anyone is looking for anything with that, that's where I spend the vast majority of my time.
I then write weekly for Puck. I have a newsletter called What I'm Hearing +, which is a supplementary newsletter to Matt Belloni's incredible What I'm Hearing.
It's so good.
Yeah, I genuinely love being the Robin to his Batman. We're here to support the brilliant Matt. That goes out on Tuesdays.
Then I do a podcast every two weeks called Downstream, which is all about the business of streaming, with Jason Snell. And then I'm on Twitter @loudmouthjulia. So in all areas of the internet, I'm available.
A multi-platform strategy, if there ever were one. Thanks for coming on!
Thank you for having me.