Iger is the right CEO to transform Disney: Analyst

Activist investor Nelson Peltz has sold off his entire stake in Disney (DIS) after the entertainment giant successfully fended off his proxy battle. Morningstar Senior Equity Analyst Matthew Dolgin joins Catalysts to discuss what this move means for the company and its future.

Dolgin notes that while current Disney CEO Bob Iger says the company is on track to develop from the linear media landscape to the streaming world, it will continue to remain a challenge industry-wide. He adds, “We weren’t sure if Peltz had the answer either,” saying the company’s transition is still “a work in progress.”

“He identified several missteps in the past, but those are easier to identify in retrospect. He didn’t necessarily have solutions,” Dolgin says of Peltz. He adds, “He thought that the company should do something with its non-sports entertainment linear network, so ABC, Disney Channel, FX, those types of stations. And we don’t think that would have been the right move. They still make up about a third of the company’s operating profit, so to get rid of that cash now, we don’t think was the answer.”

Dolgin says bundling is key in the streaming era: “It actually ends up being the most cost-effective way for consumers.” He explains that bundling delivers consumers more streamlined and efficient user experiences while providing great value.

He believes that Bob Iger is the right CEO to transform the streaming industry, noting, “The most important thing is that someone with the entertainment background … is critical to Disney’s future.”

Activism.

Mr Nelson Peltz has officially sold off his entire stake in Disney sources familiar with the matter, confirming to Yahoo Finance.

Now, this comes nearly two months after Disney successfully fended off his proxy battle.

We wanna bring in Matt Dolgan.

He is the Morningstar senior equity analyst, Matt.

It’s good to talk to you.

So le let’s talk about where this leaves Disney.

Now.

They can officially put pelts now behind the company.

I guess.

How confident are you from what you’ve heard from Igar over the last several months that Disney is in fact on the right track.

Uh Well, I’m not highly confident, but that’s not necessarily an indictment on either or Disney.

This is a really tough problem that all of the traditional media companies have right now.

Um And we think that they’re making some good moves, they’re bundling a lot more.

Um We’ll see what happens with their streaming strategy which gets sports uh the, the linear sport, especially ESPN to some streaming outlets.

So um they’re working, but as far as how confident we are that these will prove successful and we’ll be able to result in a successful evolution from a media world built on linear, you know, traditional television as we know it to streaming uh remains to be seen and no one’s figured out.

So that’s a really big challenge and we weren’t sure Peltz had the uh answer either.

Um So everything is a work in progress.

Still, Matt, was there any ideas put forward by Peltz?

There wasn’t much details, it didn’t seem in terms of his suggestions, but any ideas just in terms of the direction that you think does make sense for Disney to consider at this point.

As far as suggestions that he had, there was not anything that really stood out to us.

Um He identified several, I guess missteps in the past, but those are easier to identify in retrospect.

Uh He didn’t necessarily have solutions.

One thing that he pointed out was that he thought that the company should do something with its non sports entertainment linear network.

So a uh ABC uh Disney channel FX those types of stations and we don’t think that would have been the right move.

They still make up about a third of the company’s operating profits.

So to get rid of that cash cow, we don’t think was the answer, especially since they’re probably selling low right now, if they were to sell it or to take on a strategic partner, um We would guess that linear networks are being priced for the most dire outcome.

Uh It may be that most dire outcome is most likely but, but still, we don’t see the benefit of selling right now, especially considering the synergies that you have with streaming, which is where television’s future is.

Um We thought uh the, the, a couple of things that we like that.

Pelt said, one of which was he wasn’t sure that the uh streaming ESPN solution is the answer.

Um We agree with that we’re going to see in short order what happens both with venue, the joint venture with Warner Brothers Discovery um War of Discovery uh and Disney coming out later this year along with Fox.

Um and then next year, direct to consumer ESPN stand alone for, for Disney coming out.

Um Our concern is that it might expedite the decline in traditional television, which Disney still really needs.

So we’d prefer to see bundling with linear like what Disney has done with Charter.

Um We saw actually try to do that recently with Paramount also.

So we think that is probably the best tack to take.

Um But you know, we’ll see, like I said, there are no answers and no one has figured it out.

Matt, why is bundling key just talk to us just about the benefit of that and how significantly you think that could potentially uh offset some of the declines elsewhere within the business?

Yeah.

Well, in general, the reason we’re such big fans of bundling is because especially in the streaming environment where consumers can really switch in and out to the services that they want most of the time in a bundled environment, you’re much less likely to do that because it’s multiple different platforms that you have access to.

And even if maybe some of the Disney streaming services this month or these next few months don’t have what you want.

Maybe some of the other services will.

And so instead of going back and forth from one to the other, you might just be a little bit more content to, to stick with it.

Um The reason we especially like the idea of bundling with the traditional television pay TV packages is because we think it actually ends up being the most cost of cost effective way to consumers for consumers because they would get all that your content in addition to many of the different streaming services which they’re paying for anyway.

I mean, people really love the idea of a la carte and just get what you want.

But the reality is there is a lot of content in a lot of different places and people at one time or another want essentially all of it or much of it.

And so if you can make it most economically sensible for those consumers by giving them the contents on TV, making it a more streamlined and efficient user experience, um where you can flip on the TV and go to the program you want, instead of having to go to uh uh various, you know, to different apps.

Um And then along with the um the the stickiness of customers over time, we, we think that ends up being, again, not only the best outcome for consumers, but something that could stem the decline in the linear business based on cord cutting might, might bring the value a bit more to those people that so far haven’t seen it when it’s just essentially live TV.

And, and not what’s on the streaming uh platforms.

So Matt Disney clearly has to figure out this evolution here of Pay TV.

But you also bring up succession here in your most recent notes and how that really needs to be on the front burner here for Disney.

Uh Where do you think those discussions stand?

What would you like to see uh come about here obviously, over the next couple of years as we do get ready for this eventual transition here from Bob Iger.

Yeah.

Well, I, I can’t say where they stand, but it’s undoubtable that uh this is, but as you said, I’m the front burner.

Um Bob Iger is, is in his mid seventies now, he, you know, the reality is he’s just not going to, to be there for, for decades more.

So, in the past where you leave and come back, I think now it’s more real that you need the next person to be identified pretty soon.

Um As far as what we’d be looking for, who that is given what we’ve been talking about.

We, we really think the most important thing is that it is somebody who can figure out what to do with this evolution of traditional media.

Um The, the last CEO, you know, in between a stints was Bob Chapek.

He had come from the parks business.

We think the company is probably better off with an entertainment based CEO, certainly someone familiar with Disney.

Um If you have someone with broad leadership experience, that’s great.

But if you can’t get everything in one person, we think the most important thing is it’s someone with the entertainment background, which is certainly what Iger had.

It’s what Mike Eisner had.

Um, uh, you know, Disney is the CEO before I, um, and we think that’s critical to, to Disney’s future.

So we’d say that’s where the focus probably should be and we would expect in the next year we’d be hearing, you know, hearing what’s going to be going on.

Iger.

Um, his contract runs up at the end of next year and although it’s always possible he can renew yet again.

Um, like I said, we, we think it’s getting more real, they need to have their successor in place.

All right, Matt Dolgan.

We appreciate you joining us here this morning, Morningstar Senior Equity Analyst.

Thanks so much.

Thank you. Yahoo