The Cost Cutters Take Control at Disney

April 19, 2016, 10:06 AM

Christopher Palmeri and Bloomberg News connected the dots and drew a more complete picture of the current focus on cost-cutting within Disney's corporate management.

A group of leaders on the rise -- including Bob Chapek, who oversees theme parks; Jimmy Pitaro, in charge of consumer and digital products; and TV networks honcho Ben Sherwood -- have restructured their divisions, fired longtime executives or sought to wring more revenue out of the business. Their strategy is in line with that of Ike Perlmutter, who came to Disney with the Marvel Entertainment acquisition seven years ago and built a reputation for controlling costs.

Fans of the Disney theme parks probably will have noticed some of those attempts to "wring more revenue" from them, including date-variable ticket pricing, preferred parking options, and new early-entry and late-night upsell and hard-ticket events at Walt Disney World.

As we suggested earlier this month, the new drive to cost cuts and raise revenue at the Disney theme parks appears to be the result of management changes in the company. Many Disney theme park managers and fans have blamed cost overruns and delays at the new Shanghai Disneyland resort, but that's just a convenient excuse for cost-cutting that's happening across the company, as Disney seeks to boost its profits even beyond their current record levels. Whether serious or tongue-in-cheek, the #ThanksShanghai campaign lets Disney's upper management off the hook for its decisions to cut costs and raise prices.

Of course, not all is wonderful across the Walt Disney Company. The corporation's former cash cow — ESPN — is facing a loss of subscribers as cable companies balk at paying the subscriber fees that Disney wants for them to carry the sports channel... and subscribers look to "cut the cord" in favor of streaming services such as Netflix and Amazon Prime.

But Disney wouldn't cut costs and raise prices if it didn't work. As Palmeri noted, Chapek enjoyed great success with a cost-cutting strategy in running Disney's consumer products division.

His predecessor, Andy Mooney, employed a variety of specialists in food, apparel and toys who worked with manufacturers on product designs. Chapek scrapped that approach to focus on franchises such as “Frozen” and “Star Wars.” Profits at the consumer products division have doubled to $1.7 billion since 2011.

Long-time fans will remember that Disney drove down this road before, cutting costs and streamlining operations in its theme parks in the late 1990s and early 2000s — only to reverse course when poor attendance at new California Adventure, Hong Kong Disneyland and Walt Disney Studios Paris parks forced the company to spend billions upgrading them. And despite changes such as a new ticket price structure and testing new fees, Disney remains committed to several big-money construction projects, including Pandora: The World of Avatar at Disney's Animal Kingdom and new Star Wars lands at Disney's Hollywood Studios and Disneyland in California.

But with Bob Iger's contract as CEO up in 2018, fans are left to wonder whether Tom Staggs' effective dismissal as cost-cutters get promoted within the company signals a long-term change in corporate philosophy at Disney.

What do you think?

Replies (10)

Edited: April 19, 2016, 10:42 AM

Such is the way of a publicly traded company these days. Record profits are no longer enough to maintain momentum. Companies are continuously challenged to outperform estimates and to continue to drive revenue while decreasing costs. Shareholders and executives (acting in the best interests of shareholders), are expecting continually increasing returns from their investments, and any leveling off is seen as a cause for alarm. This is happening all over the globe right now as companies are trying to squeeze every penny they can out of their operations to gain/bolster investor confidence.

When the ESPN reports started trickling out last Q3 (staff cutbacks, subscriber losses, and increased rights fees), Disney stock started to suffer, but was buffered by Star Wars in Q4. Now that Star Wars is a known quantity, and will probably never reach the heights it attained in December (much like Marvel), the ESPN problem will start dragging on Disney (the company hit a 1-year low in February 2016 but has recently rebounded a tad of late thanks to the unexpected success of The Jungle Book). Disney either needs to unload ESPN or restructure the way it conducts business, or it will continue to be a noose around the company's neck. However, even without the ESPN problem, Disney is behaving like every other large cap company is right now, trying to extract every penny of revenue available to them to keep shareholders satisfied in this extremely demanding marketplace.

April 19, 2016, 10:45 AM

Yeah Jim Hill was talking about Ike and how he's running Marvel.

April 19, 2016, 11:33 AM

I don't think the #ThanksShanghai campaign is letting Disney's upper management off the hook. Instead, it shows that customers have no say in how things are run. Tom Staggs' firing has nothing to do with this, but you have to wonder if this is coming at the worst time. I don't think Disney is dumb enough to cost cut their major projects that increases customer dissatisfaction that'll reduce attendance and revenue. Instead, they will cost cut employees and services that cost a lot of money and customers don't normally notice. Therefore, capital expenditures increase while overhead costs decrease.

April 19, 2016, 1:03 PM

Maybe we need a new hashtag...#JustGoToUniversal

April 19, 2016, 1:52 PM

@Tim Hillman
I like that hashtag!

April 19, 2016, 3:03 PM

Tom Staggs was fired?

April 19, 2016, 4:51 PM

@TH Creative
What? Really? News to me...

April 19, 2016, 5:19 PM

I think Staggs pulled a Katzenberg and walked away a very wealthy man with the opportunity to move on to greener pastures.

April 20, 2016, 8:34 AM

Or he avoided an uncomfortable situation. Maybe Staggs was fired. Sometime to do with Shanghai cost overruns. He might just be the fall guy.

April 26, 2016, 11:14 PM

If they really want to kill the golden goose, they should continue down this road.

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