“You should see the backstage,” actor Diego Luna told the D23 Expo crowd Saturday morning as he talked up his new “Star Wars” -branded Disney + series “Andor” to the 5,000 faithful fans who packed the Anaheim Convention Center.
The assembly of boldface names that were brought out at the three-day Disney fan event for a wave and brief chat about upcoming projects was a visual representation of the breadth of content produced by the studio these days. The list included Harrison Ford, Angela Bassett, Julia Louis-Dreyfus, Phoebe Waller-Bridge, Paul Rudd, Brie Larson, Tom Hiddleston, Don Cheadle, Owen Wilson, Zoe Saldana, Giancarlo Esposito, Christian Slater, Pedro Pascal, Gael Garcia Bernal, Anthony Ramos and more.
The star power on display was impressive and so was the brand power that Disney flexed during D23 Expo by releasing dozens of trailers, teasers and first-looks at content bound for Disney + and movie theaters in the coming year. The rapid-fire delivery of “Coming Soon” messages was music to the ears of Disney CEO Bob Chapek, who has been telling investors and others that Disney + has yet to fully hit its stride in content delivery because of pandemic disruptions.
That will change by next year, which means Disney and Chapek will be under increasing pressure to evaluate the return on the billions of dollars invested in Disney + to date. On the heels of the two and a half-hour presentation of firepower from Marvel Studios, Lucasfilm and 20th Century Studios, Chapek spoke with Variety co-editor in chief Cynthia Littleton about the state of Disney’s direct-to-consumer transition, the future of ESPN within the larger Disney universe and how the company is dealing with increased scrutiny from activist investors such as Dan Loeb of Third Point.
You’ve said that we haven’t really seen Disney + firing on all cylinders yet. With all the content unveiled the past two days at D23 Expo, is the volume planned for 2023 about where you want to be?
When we launched in 2019, we had no idea of the appetite of the Disney + audience for new content. We underestimated what it was to become the new steady state. I think that realization came over the first year, and it came at a time where we were completely constrained about providing new content, because everything had shut down because of COVID. So the only thing we could do with the little that we had at the time was to repurpose content that was originally thought of for theaters and move it to Disney +, and after all, theaters were closed. But then we came to the realization that in order for us to have our full expression of Disney to our fans, and satiate all the demand that they have, we had to create for both distribution channels, we had to create for theaters, and we had to create for Disney plus. And that means we needed more content than ever. … Now this is the realization of that. Now these are not just title slides at an investor conference, but it’s the embodiment of it. Shows have been written, cast and produced, and they’re starting to come out. And this is the true realization of that.
What have you learned over the past three years of operating Disney + in terms of the connection between new content and new subscribers signing on. Can you draw a line between a show’s launch and new subscribers joining in week 1, week 2, week 3? How do you calculate your ROI on individual titles in a subscription environment?
We do it in a way that is very thoughtful and very considered. That is the mission of the new distribution (Disney Media and Entertainment Distribution) organization. When we announced (DMED) people were thinking, what is that? It is distribution for the new modern entertainment world where you have to plan not only what comes into the system in terms of new types of storytelling, and how much of it, but also where it goes, when it goes, how it goes. And that is essentially what the mission of that new distribution organization is.
What are your key metrics for valuing Disney + content?
We have more metrics, with Disney + and our streaming businesses to gauge how people are consuming and when people are consuming than ever before. That provides a feedback loop for how much content we need. And remember, we’re only into this less than three years. We’re not even three years into the streaming business. But our sophistication has grown exponentially in terms of knowing how to program this business. You know, we’ve been in the broadcast business forever. We’ve been in the theatrical business forever. That we completely understand. With streaming, we were just getting our sea legs on in the first few years. Now with COVID sort of in the rearview mirror, we’re getting to full expression. Now we’re able to plan what is our full expression of theatrical and how much do we want? How much do we need? What is our full expression for broadcast? How much do we want? How much do we need? And what is our full expression for our streaming services? How much do we want? How much do we need? And then if you’re a genius like (Marvel Studios chief) Kevin Feige, how do you tie the content that goes into each of those together with a mythology? There is an inextricable link not only to the mythology, but to the distribution platforms so that the timing of (release) is absolutely critical. It all has to be puzzle pieces that fit together. And that is the mission of that distribution organization.
Disney is facing calls from some prominent investors to shake things up even more. Investor Dan Loeb of Third Point has called for you to sell or spin off ESPN and devote even more resources to streaming content. He’s not the only one to opine that sports is becoming an outlier for Disney given the unprecedented scope of entertainment content that you now produce. What do you say to those strategic suggestions?
The Disney of the next 100 years will be more expansive than the Disney of the first 100 years. The brand’s elasticity is amazing – the capital D Disney. Each of the components of our company – whether it’s Marvel, Lucasfilm, Pixar, ESPN, ABC – they have their own identity. But they all play into a much more expansive view of what Disney is. And the ultimate arbiter of what Disney can and can’t be is the fan, the viewer, the guest. They are the ultimate arbiter. Now, you can look at this from two different ways, from the guest standpoint or from a commercial standpoint or a shareholder standpoint. Does it actually make sense? And I think that in Dan’s case he was more asking the question, is this the right business combination for the company? Our investors only know what we’ve shared with them to date. They don’t really know what our plans are for the future. We’ve got very ambitious plans for sports. Something like 95 of the top 100 (most-viewed) shows in the past year on broadcast TV have been live sports. So, if you’re in an advertising business, if you’re in a business of talking to people, that’s kind of a big deal.
You feel confident that advertising and affiliate fees are still going to keep ESPN healthy even as sports rights continue to skyrocket?
The advertising demand for ESPN speaks volumes. But what else speaks volumes is that when the word was out on the street that will maybe Disney will spin off ESPN, we had no less than 100 inquiries of people that wanted to buy it. What does that tell you? That says we’ve got something really good. And if you have a strategic plan, a vision for where it fits into the company over the next 100 years, then you don’t exactly want to divest yourself of it. And we have that plan. We’ve not shared that plan.
Do you have a timetable for sharing that plan?
We have not yet divulged that… .We will, at some point, do another investor day. And we’ll have a more fulsome expression of not only that, but a more fulsome expression of our membership ambitions.
Can you give me a practical example of how ESPN and ESPN + being together with Disney and Disney + – how do all those entities benefit by being under the same roof?
Today’s expression of that value is through a bundle. And as you know, the bundle offers tremendous value and benefits to the consumer. But it also offers tremendous value and benefits to our shareholders because the churn is so extraordinarily low. You know the term soft bundle and hard bundle, right? Soft bundle is, hey, buy all three services for the low price of X. The hard bundle is when things become seamless, and without friction. Right now if you want to go from Hulu to ESPN + to Disney +, you have to go out of one app to another app. In the future, we may have less friction (grins).
You also have a lot going on right now with Hulu. The service is coming off an incredible year with original content, but the larger question remains of how does Hulu fit into the emerging Disney bundle?
Well, the number-one request that we have from Disney plus subscribers is for more general entertainment. We still have a lot of headroom to go from Marvel fans that have yet to subscribe. Lucasfilm fans have a lot of headroom to go, Pixar has a lot of headroom to go. But the number-one opportunity we have is to add more general entertainment. When people watched ‘Dumbo’ with their kids and they put them to bed, and it’s now 7:30 – those same very same people might not want to watch ‘Bambi,’ right? They want to watch something else, something that’s still capital “D” Disney. And the elasticity of that is much more broad than we ever could have imagined, as exhibited through our experience in Europe, on Disney +, where we have a lot more general entertainment on the (platform). The appetite for general entertainment is enormous. We have lots of general entertainment content within the Walt Disney Co. We just don’t have the full ability to use it because of the complicated ownership situation that we have (in Hulu), at least for the next 16 months.
To that end there’s an agreement in place for you to buy out Comcast’s remaining 33% share in Hulu by 2024. Are there any conversations going on now to accelerate that buyout timetable?
It is possible. But that depends on the propensity for the other partner to be willing to have discussions that would bring that to fruition earlier. We would be absolutely willing to do it.
Are you in active negotiations now?
We’ve been in discussions for quite a long time. This is not a new idea. There have been ongoing, sporadic conversations for a long time.
I have many more questions but our time is tight. Let’s end on the parks division which is close to your heart, with you having led the division prior to your promotion to CEO in February 2020. We’ve heard a lot of agita from consumers about changes to the annual passholder program for Disney Parks. That obviously is not what you want to hear. What’s your solution?
We like to make sure that we’re meeting the needs of all of our guests, and we absolutely love our superfans. The balancing factor is you also want to cater to the family from Topeka, Kansas that shows up with their family of four. And they want to be able to get into the park and experience the magic of Disney once every five years. We’ve got to make sure that we’ve got space in the park to deliver on their needs as well. So it’s a balancing act. And as demand for our parks exceeds our ability to, in a quality way, deliver on that experience because the demand is so much higher than our supply, we need to provide balancing factors over time to make sure that we not only meet the needs of the superfan, but meet the needs of the fans that can only come once every five years from a distant location.
That is the definition of a high-class problem. Thank you for your time.
(Pictured: Disney’s Bob Chapek, center, flanked by Disney Studios chief Alan Bergman, actor Cynthia Erivo, and Disney motion picture production head Sean Bailey at the Sept. 7 premiere of “Pinocchio.”)