Bob Iger Has Bad News For Walt Disney Fans (and a Little Good)

After three months back as Disney CEO, Iger shared some things that Mouse House aren't going to like (and one that they should).

Former Disney CEO Bob Chapek took a growth-at-all-costs approach to the company's streaming business. 

Disney+ went from launch in November 2019 to 161.8 million when the company reported earnings in February (a 1.5% drop from its peak of 164.2 million). 

That growth far exceeded any early predictions the company had made before launch. Walt Disney (DIS) - Get Free Report, of course, did not know that covid would force people to shelter at home, leaving them desperate for entertainment, the perfect time to launch a streaming service full of familiar brands and comforting archival content.

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Chapek also priced the service aggressively, in the U.S. and worldwide. 

Current CEO Bob Iger remains excited about the prospects for Disney+, but he has issues with how it has been priced. He elaborated in remarks at the Morgan Stanley Technology, Media and Telecom Conference.

"I am extremely bullish on some of our streaming prospects, notably Disney+, which grew to just such an -- at such a meteoric rate. And I think the reason it grew is the strength of the content, those brands that occupy that space."

The newly returned CEO then made clear that both content cuts and higher prices could be coming.

Iger Sees Problems With Disney+

"We know, in terms of delivering profitability and growth to that platform, that we have to better rationalize our costs. Obviously, we have to attract more subs. But I think one of the key things that we have to figure out is a pricing strategy that makes sense," Iger said.

While he did not directly spell it out, Iger has made clear that Disney has to become more careful with its content budget. 

He has already cut back on some shows and pushed back production dates on others. Disney has also canceled shows that lacked the breakout potential of Star Wars and Marvel shows. Two canceled examples: "The Mighty Ducks" and "Big Shot."

Iger did say that he thought his predecessor made pricing mistakes with Disney+.

"I think, in our zeal to grow global subs, I think we were off in terms of that pricing strategy. And we're now starting to learn more about it, and to adjust accordingly," he added.

That could include getting rid of promotional pricing.

"While I'm pro-consumer, generally, I think we have to take a look at how easy it is for the consumer to not just sign on, but sign on sometimes under promotional circumstances where it's not only less expensive, in some cases, it's free, and the signing you get for three months, you get one month free, watch all you want in a month, so sign off that and go to another one that's doing the same thing," he said.

Iger believes that multiple changes need to make to make Disney+ profitable.

"So, I think we have a lot of rationalization to do from a pricing perspective. But that's one path to profitability; another is we do have to grow subs," he added. "A third is basically coming to grips with rising costs of production, and also figuring out just how much volume we need for that platform."

Disney Theme Parks May Get Cheaper

While you can argue that Disney+ remains broadly accessible, whether it costs $7.99 or $17.99, the same cannot be said about Disney World and Disneyland. 

Prices at both theme parks have gone up as have prices on food inside the theme parks. Disney has also tacked on needed extras like its Genie+ and Lightning Lane products, which guests more or less have to buy.

Iger acknowledged during the event that Disney may have lost its way when it comes to pricing at its theme parks.

"I've always believed that Disney was a brand that needed to be accessible. And I think that in our zeal to grow profits, we may have been a little bit too aggressive about some of our pricing," he shared.

The CEO spoke broadly but made clear that he was at least thinking about pricing at Disney's theme parks.

"I think there's a way to continue to grow that business but be smarter about how we price so that we maintain that brand value of accessibility," he said. 

"And ... we took certain steps when I came back to do just that, and they've resonated extremely well with consumers. And we're not only going to continue to listen to consumers, but we're going to continue to adjust."