Financial Times 27Feb2020

Thursday 27 February 2020 ★ F I N A N C I A L T I M E S 15

to him, until the end of next year. When

asked what “creative endeavours”

entails, he said: “I intend to really focus

on the creative engines of the com-

pany... movies and TV, very specifi-

cally... encouraging people to take

smart creative risks.”

The appointment of Mr Chapek came

as a surprise because analysts had

thought that Kevin Mayer, another

longtime Disney executive, was being

groomed for the top job.

Mr Mayer has made a name for him-

self as a dealmaker, helping to orches-

trate a string of successful acquisitions

— Pixar, Marvel, Lucasfilm and 21st

Century Fox — that built Disney into the

powerhouse it is today. More recently,

he was appointed to run Disney’s

streaming and international businesses

— a high-profile job given Mr Iger’s

emphasis on streaming as the future of

the entire group.

The promotion, in early 2018, height-

ened speculation that Mr Mayer would

eventually become chief executive.

Mr Iger has bet the group, and his own

legacy, on an ambitious push into online

streaming. He postponed his retirement

to guide Disney through the transition,

having gained Fox’s prized entertain-

ment assets from Rupert Murdoch in a

$71.3bn deal 18 months ago.

Last April, Disney laid out its ambi-

tious plans for its new streaming serv-

ice. During a crucial pitch to investors

Mr Iger greeted them at a sound stage on

Disney’s studio lot, followed by Mr

Mayer, who took the platform to dem-

onstrate a prototype of Disney+, the

new service. Nearly a dozen other exec-

utives also presented during the event,

but Mr Chapek was not among them.

The plan went down well with Wall

Street, Disney’s stock having risen 10

per cent since. And the early results

have been promising. Disney has

already lured nearly 30m US subscrib-

ers to Disney+, which offers program-

ming from Marvel, Pixar and Star Wars

for $7 a month, in the first three months

since its debut. In comparison, it took

Netflix a decade to reach 60m US sub-

scribers.

But the push is still an expensive gam-

ble and one which the group expects to

lose money from for years. Earlier this

month, Disney revealed that its total

costs in the three months to December

had jumped to $18bn, up 51 per cent

from a year ago, partly due to the launch

of Disney+.

The group’s consumer and interna-

tional business, which is responsible

for the streaming service, reported

an operating loss of $693m. In its last set

of annual results, for the year to Sep-

tember, Disney reported net income

of $10.4bn, down 17 per cent year on

year.

Brian Wieser, president of business

intelligence at GroupM, noted that in Mr

Chapek, Disney’s board had chosen an

executive with extensive experience in

the more profitable parts of Disney’s

business.

“Look at the businesses he’s been in

charge of. They have nothing to do with

streaming, but everything to do with

profitability,” he said. “What Disney is

doing [with streaming] almost certainly

erodes margins. If I were the board, I

would probably have been questioning

that.”

On a call with investors on Tuesday,

both Mr Iger and Mr Chapek looked to

reassure investors that there was no big

strategic shift ahead.

“We just had a fairly major reorgani-

sation,” said Mr Chapek, adding that Mr

Iger’s strategy is “well entrenched” at

Disney.

But the out-of-the-blue announce-

ment still took Wall Street by surprise,

sending shares down 3 per cent in after-

hours trade.

“Companies usually go to great pains

to telegraph these things in advance.

They typically make sure the executives

have some exposure to the analyst com-

munity,” said Mr Wieser. He added that

the abrupt nature of Mr Iger’s succes-

sion announcement “raises questions: is

Disney+ really going all that well?”

See Lex

Disney’s plot twist leaves investors guessing

Iger insists streaming gamble remains a priority as he steps aside, but analysts point to replacement’s profit focus

Disney’s three-year performance

Share prices (rebased)

Sources: Refinitiv; UBS estimates; company data; The Numbers











  

Disney

AT&T

Comcast



Disney outspends its rivals on content

By company* (bn)

    

Disney

Comcast

Netflix

ViacomCBS

WarnerMedia

Amazon

Fox Corp

Sony

Discovery

Apple

* Includes sports and entertainment spending

Entertainment

Sport

Disney’s earnings by business unit

Operating income (bn)

Parks, experiences and products

Media networks

Studio entertainment

Direct-to-consumer & international

Fiscal quarters. Excludes eliminations from intersegment transactions

-

-













  

Stardust: the ‘Frozen’ franchise is

among the past decade’s successes

A n n a N i c o l ao u — N e w Yo r k

Walt Disney has spent the past three
years making a high-stakes transition to
online streaming, as the century-
old owner of films, television shows and
theme parks looked to confront enter-
t a i n m e n t d i s r u p t e r s s u c h a s
Netflix head-on.
Bob Iger, Disney’s well-regarded chief
executive for the past decade-and-a-
half, has repeatedly called the shift the
“number one priority” at the largest
media company.
It therefore came as a surprise on
Tuesday when Disney abruptly
announced that Mr Iger was retiring,
with nearly two years left on his con-
tract, to be replaced “immediately” by
Bob Chapek, a little-known company
veteran who has minimal experience in
streaming.
“You thought you were going hard
right, and all of a sudden you went hard
left,” said Rich Greenfield, a media ana-
lyst and partner at Lightshed, the
research company. He likened the
choice to Apple’s decision to replace
Steve Jobs with Tim Cook: “You’re
choosing the operating executive
instead of the visionary, dynamic CEO.”
In an interview with the Financial
Times, Mr Iger defended the choice of
Mr Chapek as his successor.
“No one knows the Disney brand bet-
ter than Bob [Chapek]. That is a prereq-
uisite to being able to run this company
well,” he said. “It’s less important that he
knows the specifics of one business, and
more important that he appreciates
how all of these businesses fit into one
company.”
However, analysts questioned the
timing: on a random Tuesday afternoon
just a few weeks after Disney reported

quarterly results, and with no pressing
reason to announce a succession plan.
Mr Iger told the FT that Disney’s
board had considered both internal and
external candidates in what was a “thor-
ough” succession process.
“We’ve been working on this for a
while,” he said. “There’s no magic to the
date, other than I felt the sooner we do
this, the quicker it gives Bob the chance
to run the company and for me to shift
my priorities.”
Mr Chapek has worked at Disney for
almost three decades. The 60-year-old
Indiana native, who holds degrees in
microbiology and business, worked in
brand management at Heinz before
joining Disney in the 1990s, where he
helped craft the company’s VHS and
DVD strategy. He later led Disney’s con-
sumer products division, and most
recently ran theme parks, which have
been a strong source of profitability for
the group in recent years.
Mr Chapek told investors that his
experience gives him a “broad over-
view” of how Disney operates but
admitted: “Obviously I have not spent as
much time on the media side or the
direct-to-consumer side.”
Mr Iger, 69, says he told the board that
he needed to focus on “creative endeav-
ours”, which should be the “real priority
of the company”, and to do so he needed
to hand the reins of day-to-day manage-
ment to someone else.
He will remain as executive chair-
man, with Mr Chapek reporting directly

‘If I were the board, I

would probably have been

questioning’ Disney’s

streaming strategy

COMPANIES

Leading cast: Bob Iger, left, is being replaced by Bob Chapek, a little-known company veteran with minimal experience in streaming — FT Montage

R i c h a r d M i l n e
N o r d i c a n d Ba lt i c C o r r e s p o n d e n t

Swedish banking company Klarna,
Europe’s joint-largest unlisted fintech,
suffered its first-ever annual loss in
2019, making heavy credit falls amid a
big push into the US ahead of a possible
stock market flotation.

The “buy now and pay later” company
made a net loss of SKr902m ($93m) last
year, down from a profit of SKr105m a
year earlier, marking its first annual def-
icit since it was founded in Stockholm in
2005.
Its credit losses more than doubled to
SKr1.86bn, something it blamed on
entering new markets where first-time
customers pay back less reliably.
Backers such as venture capital firm
Sequoia Capital, private equity group
Permira, and fashion retailer Hennes &
Mauritz have invested in Klarna, push-
ing its valuation last August to $5.5bn,
the same amount posted this week by
UK-based digital bank Revolut.
Klarna, which counts rapper Snoop

Dogg and Visa among its shareholders,

had been unusual among fintechs in

having consistently been profitable due

to its model of earning fees from mer-

chants such as Ikea and Asos as well as

interest from late-paying customers.

But that record has ended as it invests

to boost its position in the US — the most

likely venue for any stock market flota-

tion — as well as in Australia and New

Zealand. It is also readying to launch in

several unnamed European countries

and has opened a tech hub in Berlin.

Sebastian Siemiatkowski, chief exec-

utive, told the Financial Times six

months ago that “I definitely think [an

IPO] will happen” but that the focus was

on “growing fast”, and he has remained

tight-lipped on any timetable.

Its total operating revenues jumped

almost one-third to SKr7.2bn as the vol-

ume of goods sold through Klarna in

2019 rose 32 per cent to more than

$35bn. Klarna handles payments for

more than 200,000 merchants around

the world, and in 2019 added brands

such as H&M, Expedia, Superdry and

Samsung to its roster.

It increased the number of US users of

its pay-later services sixfold during 2019

while those in the UK doubled.

The Swedish group said: “The ongoing

investment phase has and will

further enhance the offering towards

both merchants and consumers across

markets, which provides a platform for

driving sustained customer preference

and growth in the next years.”

Klarna has faced growing scrutiny in

Sweden over whether its offers to let

customers pay in 14 or 30 days, with

steep fees if they forget, trap vulnerable

consumers. The company said it was

aiming to reduce its revenues from late

fees and did not charge interest or fees

in the US or UK on “core products”.

Technology

Klarna’s growth push drives first annual loss

The Swedish group aims to

launch in several European

countries and has opened a

tech hub in Berlin

FEBRUARY 27 2020 Section:Companies Time: 26/2/2020 - 18:42 User: joe.russ Page Name: CONEWS2, Part,Page,Edition: USA, 15, 1