How Disney Plans to CUT $5.5 BILLION From Its Spending

Things at Disney are…interesting.

They were in the middle of a proxy battle over a seat on the Board of Directors that has suddenly ended. Despite a lot of pressure to make streaming profitable, Disney’s direct-to-consumer business has still reported some big losses and Disney+ reported a slight LOSS in subscriptions. And while Genie+ is making lots of money for the parks, Iger is reportedly committed to listening to guest feedback. But for this post, we’re zeroing in on one particular thing discussed during Disney’s latest financial call — just how much spending Disney is looking to CUT.

In November of 2022, Disney’s direct-to-consumer business reported a loss of over a BILLION dollars. That, along with various other things, led to the ouster of Bob Chapek as CEO and the return of Bob Iger to the position. But just a few months later, Disney’s direct-to-consumer business is still reporting losses. In the first quarter of 2023, Disney’s direct-to-consumer business reported a $1.053 billion loss.

But big changes are coming to Disney that could help them cut down on some of their spending and balance out certain losses. During the earnings call, Iger went into detail about just how many BILLIONS Disney will be looking to cut when it comes to costs. (Quotes obtained via transcript shared by The Motley Fool)

Iger noted that they are actually “targeting $5.5 billion of cost savings across the company.” Let’s go through how that savings will be achieved.

Noncontent Costs

About $2.5 BILLION of the cost cuts will come from “reductions to our noncontent costs, not adjusted for inflation.” According to Iger, “$1 billion in savings is already underway.”

When we talk about non-content costs, it means cuts for things that don’t really have to do with the content Disney is putting out (i.e. these cuts won’t come from, say, not renewing a show on Disney+ or delaying a movie).

Disney’s Chief Financial Officer, Christine McCarthy, further elaborated on the cuts in the non-content area. She noted that the reductions are expected to be made of the following:

• 50% marketing
• 30% labor
• 20% technology, procurement, and other expenses

When it comes to reductions in marketing and labor, McCarthy said, “The bulk of the efficiencies we are realizing this year are related to reductions in marketing and headcount at DMED.”

Some of the changes at DMED likely have to do with the massive restructuring Iger announced for the Company. These changes are already effective. Disney has essentially been reorganized into 3 core segments — Disney Entertainment, ESPN, and Disney Parks, Experiences, and Products.

The change largely undoes the structure put in place when Bob Chapek was CEO, which involved the creation of DMED (Disney Media & Entertainment Distribution) and created a divide between creatives and distribution decisions about their works.

Iger has championed this reorganization as one that will “result in a more cost-effective, coordinated, and streamlined approach to our operations. And we are committed to running our businesses more efficiently, especially in a challenging economic environment.”

We’ve already seen this structure result in the departure of one Disney executive, and it seems like it could result in the removal of other jobs.

Additionally, to help achieve these cost cuts, Iger announced that Disney would be “reducing” its workforce by approximately 7,000 jobs. Disney has not yet revealed exactly what jobs will be cut, but based on our understanding it could include some jobs that have not yet been filled.

According to Josh D’Amaro (Chairman of Disney Parks, Experiences, and Products), every segment across the Walt Disney Company is expected to be impacted by these job cuts, including the Parks, Experiences, and Products division.

But there’s a bit of good news. According to a statement from D’Amaro, the job cuts are NOT expected to affect those working in hourly frontline operations roles. Of course, things are always subject to change.

Iger noted that the job cuts are necessary, but he is not making the decision to cut these jobs lightly. He shared, “I have enormous respect and appreciation for the talent and dedication of our employees worldwide, and I’m mindful of the personal impact of these changes.”

In terms of the remaining savings within the non-content category, McCarthy said that there will be “SG&A [Selling, General, and Administrative Expenses] and other operating expense savings, which will fully materialize by the end of fiscal 2024.”

Content Costs

Only $2.5 billion cuts are coming from non-content cuts so where will the rest of the $5 billion cut in spending come from? Well, Iger noted that that will come from the content side. His exact words were “On the content side, we expect to deliver approximately $3 billion in savings over the next few years, excluding sports.”

McCarthy seemed to indicate that these savings on the content side will be in the longer term.

During the call, one analyst (Jessica Reif Ehrlich) asked about these $3 billion cost cuts in content. Ehrlich asked, “is that largely fewer titles?” Iger responded by saying that Disney is going to “take a really hard look at the cost for everything that [they] make, both across television and film, because things, in a very competitive world, have just simply gotten more expensive.”

He shared that Disney will also be looking at the volume of what they make. He continued, “with that in mind, we’re going to be fairly aggressive at better curation when it comes to general entertainment.” He made a distinction between general entertainment and things like Disney’s core brands and franchises. Iger pointed out that general entertainment is “generally undifferentiated” while Disney’s core brands have more differentiation and deliver higher returns.

Iger emphasized this in response to another question, saying that Disney would be working to “lean more into [its] franchises, [its] core franchises, and [its]brands.”

As a sign of that, Disney is already working on sequels for some of its most popular films — Frozen, Toy Story, and Zootopia. It seems we could see a greater emphasis placed on Disney’s biggest brands in the future.

How exactly will these cost cuts play out? How many Cast Members will really be impacted on the parks side? How else will Disney try to save some cash? That remains to be seen, but we’ll be keeping an eye out for more details.

See our posts below for more from the latest earnings call and report by clicking here (there’s a LOT of news to share)

What do you think about Disney’s plans? Tell us in the comments.

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