Bob Chapek borrowed billions and sidelined insiders. It's all part of the plan - exclusive.
Bob Chapek is in his element. It is a cool November evening, and the chief executive of Walt Disney is settling in to watch the nightly fireworks high above Sleeping Beauty Castle. As the former head of the company's theme parks, he has seen the show countless times here at Disneyland, but he still can't resist the urge to snap photos. As the smoke clears, Chapek shows off his pictures, which seem to have captured the best moments. "After a while you learn when the finale is coming," he chuckles.
He knows this place intimately and, despite years of dealing with the crises and headaches that come with running some of the most scrutinised attractions on earth, it is clear Chapek still feels the Disney magic. He lets out whoop-whoops on a Cars Land ride, devours an enormous corn dog on a stick and recites the safety instructions for Soarin', a multisensory ride that is among his favourites, along with the narrator. "I must have seen this 60 times," Chapek says of the tongue-in-cheek video, "but it still gets me every time."
The evening at the park appears to be a happy diversion for Chapek, whose first 22 months as chief executive have been punishing. Just days after taking the job on February 25 2020, the Covid-19 pandemic shut down cinemas, theme parks, cruise lines, and film and TV production, leading to a near-collapse of Disney's revenue. The Walt Disney Company survived the Great Depression, the second world war and periodic bouts of operatic management, but there was perhaps no blow as sudden or threatening as coronavirus. "He takes over the job and then 20 minutes later Covid hits," says Alan Horn, the legendary film producer who will retire at the end of this month after nine years at the Walt Disney Studios, the company's film and entertainment unit. "He's had a rough year and a half."
With audiences trapped at home during Covid lockdowns, Chapek moved aggressively to promote Disney Plus, the company's primary weapon in the streaming wars against Netflix, Amazon and other old-guard studios. Subscriptions soared. But in his pursuit of digital growth, he angered theatre owners, Hollywood stars — most notably Scarlett Johansson and CAA, the talent agency juggernaut that represents her — and even some of his own employees.
Chapek's experience running theme parks sets him apart from both his predecessors Bob Iger and Michael Eisner, who started at the bottom of American television and hustled their way to the top. They saw themselves as creative people at heart. But Chapek came into the CEO role as a relative unknown in Hollywood and on Wall Street, despite a nearly 30-year career at Disney that included successful stints running distribution for the Walt Disney Studios and as president of the home entertainment division. By his own description, he has spent his career with his "head down" as he focused on the job at hand. "Chapek is not a visible person," says Rich Greenfield, an analyst at LightShed Partners.
Perhaps that's why the talent agents, attorneys, financial analysts and journalists who populate the American entertainment ecosystem tend to view him as a "parks guy" — an outsider, a number-cruncher, a cost-cutter. A former entertainment executive at Disney adds that Chapek's reputation inside the company is "very operational".
The notion that he is merely a bean-counter irks Chapek. "I've seen creativity in this company through every lens possible," he says in an exclusive interview. He compares running the theme parks with observing "a focus group every day" that gave him a unique perspective on "what makes the Walt Disney Company so different from any other media company". He adds, "It ties us to our ultimate constituent, which is the consumer."
An American CEO saying that the customer is always right does not sound controversial, but this consumer focus is at the heart of what worries some actors, directors and agents in Hollywood. Consumers love streaming movies at home, and Chapek wants to double the number of Disney Plus subscribers in the next two years. But streaming is not good for the box office. And for decades, success at the box office has been a source of prestige in Hollywood and allowed top talent to make millions through the so-called backend, a bonus for hitting ticket-sales targets.
This tension has boiled over into a conflict over the two things people in Hollywood care about most: the magic of movies and the colour of money. Such concerns are rippling through other studios, too, and difficult contract negotiations are widely under way, reflecting the changing economics wrought by the streaming era. "We're wading through all that," explains Ari Emanuel, whose group Endeavor owns the William Morris talent agency. "We're all going to get to the right number. It's a very competitive environment, which is good. And Bob Chapek is very competitive."
Through the turmoil, some were comforted to know that Iger, Chapek's larger-than-life predecessor, was still serving as chair and overseeing the company's creative work. During his 15-year tenure as chief executive, Iger transformed Disney through a series of acquisitions that left it holding a collection of the most valuable franchises in the entertainment business. Now, with the 70-year-old Iger set to retire on December 31, Chapek will finally have the keys to the Magic Kingdom all to himself.
When that happens, Chapek will take full control of the most iconic entertainment company in America during a period of change as profound as the arrival of television in the 1950s. He'll have to convince Wall Street that he's willing to go as far as it takes to win the streaming wars and simultaneously court those in Hollywood who either don't know him very well or don't trust him. Not to mention shut down internal carping; Iger raised doubts about Chapek's strategy in the early months of the pandemic, according to people who spoke with him at the time.
None of which is much surprise to Chapek on our trip to Disneyland. His starting point is that times have changed, and the studios must change too, even those within Disney. He is unwavering in his view that his job is to deliver entertainment however people want it, not how Hollywood film-makers believe it should be. "We love theatrical exhibition. We love linear television," he says. "But it's not about what we love, it's about what the consumer loves. They will be our guide."
Born in 1960, Chapek grew up in a modest household in the industrial city of Hammond, Indiana, just across the state line from the south side of Chicago. "People aspired to get a union job and work in the steel mill, the oil refinery or the soap plant," he recalls. "Ambition stopped at being able to provide for your family."
Both of his parents worked, and his mother's income helped pay for little extras, including a road trip in the family Chevrolet to Florida every December. The first stop was always Orlando, some 1,800km south, home of Walt Disney World. "It was one of the two places where my love for the Disney brand was seeded," he says. The Mary Poppins soundtrack was the first. Those trips left a strong imprint, Chapek says. "But that's not to say I had any ambition or thought that I could ever work there, because that wasn't something that was in reach for a kid from the region. It wasn't in the cards."
Chapek loved science and hoped to study biology in college, an idea that his high school guidance counsellor dismissed. "She told me, 'Why do you want to do that? Get a union job, pick one of the plants and retire at 50.'"
He didn't completely escape the factories. Chapek spent three summers working for American Maize, first in its dextrin plant, which produced glue for stamps and envelopes. In the Midwestern heat, the dextrin turned into glue in the air, sticking to his face. "It was a horrifying sight to look at me when I exited the factory because all you saw were my white eyeballs and the rest of my face was literally plastered with glue," Chapek recalls. "I had to go to the bathroom every 15 minutes to throw water on my face."
He attended Indiana University in Bloomington, where he majored in microbiology. It was there he met his wife of 41 years, Cynthia Ford. After graduating, Chapek went to business school and found work at J Walter Thompson in Chicago, then the largest advertising agency in the US. Among the accounts he worked on was Kraft Singles cheese. "That was the beginning of my fascination with consumer behaviour," he says. "I went headfirst into the creative side and found I really liked it."
Chapek's work with packaged products eventually led him to Disney in 1993, to an unglamorous corner of the business: home video. As head of marketing for Buena Vista Home Entertainment, his job was to persuade fans to build a library of Disney movies on tape or disc instead of renting them from Blockbuster. Chapek sold the movies just as he had sold processed cheese, working with the likes of Walmart and Target to move copies of The Mighty Ducks or 20,000 Leagues under the Sea.
After he was promoted to president of the home entertainment division in 2000, Chapek championed the "vault" strategy, which meant releasing a Disney animated classic on video, then pulling it off the market — or putting it "back in the vault" — for several years. This created a sense of scarcity and spurred demand. Chapek also built out the "direct-to-video" business on titles such as The Lion King 1½. It was a huge success, even if big-screen feature producers viewed the movies as second-rate.
Among investors, the public and some in Hollywood, the general response to Chapek's appointment as CEO last year was: Who is Bob Chapek? A packed schedule over the next few weeks was supposed to fix that, starting with meetings with Wall Street analysts in New York. Next up was a trip to Raleigh, North Carolina, to run his first Disney annual shareholders meeting.
The first signs that Chapek's tenure might be off to a rocky start came over the skies of North Carolina on March 10. As the corporate jet was about to land, the pilot announced that the governor had closed the state due to rising cases of Covid-19. "Closed the state?" Chapek recalls asking himself. "We didn't know then what we were dealing with."
The usual sneak previews and other entertainment was quickly edited out of the programme, official business dispensed with and the meeting wrapped up. The next day the team flew to Orlando, which had been planned as a triumphant homecoming for Chapek, with Iger introducing him as CEO to his former fellow "cast members" at Walt Disney World. But this was no time for fun. "We did the town hall and left," he says. "And the next day we closed the company."
It was a huge undertaking. Disney shut three parks: Disneyland Paris, Disney World in Florida and Disneyland in California. (The parks in Shanghai, Hong Kong and Tokyo were already closed.) Disney's four cruise ships were docked. Work on new film and television production was halted, leaving the ABC and ESPN TV networks as the only major business units still operating in North America.
Next, Chapek turned his attention to ensuring the survival of the Magic Kingdom, which suddenly had very little money coming in. Just a year earlier, Disney had closed on its US$71 billion acquisition of 21st Century Fox, Rupert Murdoch's massive trove of film and TV assets that includes everything from The Simpsons to Aliens and Die Hard. The company financed the deal through stock and cash, while also taking on Fox's US$14 billion in debt. Now it needed to raise billions more just to meet payroll. By March 20, Disney shares had fallen 39 per cent from just a month earlier.
Disney raised more than US$20 billion through debt offerings to weather the storm, while furloughing 100,000 workers. "Everybody has a 100-day plan" when they start as a CEO, Chapek says "But my 100-day plan was essentially derailed on day 10."
Both Iger and Chapek saw streaming as an era-defining opportunity. Executives say this is the biggest burst of innovation since the 1930s studio gold rush. But realising the opportunity requires old media groups to dismantle the very business models they've counted on for profits while pumping out more content than ever.
The beginning of Disney Plus was something of an accident. In 2016, after noticing that Disney was selling a lot of its programming to streamers, Iger asked one of his top lieutenants, Kevin Mayer, to figure out whether brokering one big global deal with Netflix or Amazon would bring in more licensing revenue than individual auctions, according to people familiar with the discussions. Mayer returned with a message for Iger. "Yes, we can make more money by striking a global deal with Amazon." But having seen how quickly streaming services were growing, he advised that Disney should consider creating its own instead. Iger responded, "Kevin, go build it." Orders, in other words, to engage in an expensive battle with the deep-pocketed technology companies that have upended Hollywood.
Three years later, Disney Plus debuted publicly. It was Iger's final gambit before stepping down as chief executive. He told investors repeatedly that the service was the "highest priority" for the company, crafting a narrative that he was taking a big swing that could lose money for the next five years but secure its survival for decades to come. He positioned the strategy as revolutionary: either remake Disney or face extinction.
Disney Plus has been an undeniable success. By stuffing the service full of spin-off programming from the company's popular franchises — The Mandalorian in the Star Wars canon, WandaVision from Marvel — and pricing it at $6 a month, Iger and Mayer created a product that was an easy sell to American families. In less than a year and a half, 100 million people had signed up for Disney Plus, a feat that had taken Netflix more than a decade to achieve*.
Iger's swan song would also pay off for Chapek. Iger had so convinced Wall Street of the promise of streaming that Disney's stock price floated higher, rebounding from pandemic lows to record highs even after other sources of revenue evaporated. In the two years after its debut, a media banker noted recently, Disney Plus generated more stock-market value than the entire market caps of General Motors or Ford.
The surge in new subscribers was helped by Chapek's decision to release some of Disney's biggest movies on streaming the same day that they debuted in theatres. This strategy, known as "day and date" release, provides an obvious benefit for streaming services. But it is wildly unpopular with studio chiefs and actors, a fact that became clear after the release of in July.
Scarlett Johansson stars in the movie as superhero spy Natasha Romanoff, a member of the Avengers central to Marvel's so-called cinematic universe. Johansson was paid US$20 million for the role and expected to earn as much as US$50 million more through a backend bonus, a bargaining chip used by the most-bankable actors when negotiating pay. But that contract had been hashed out years before Disney even had a streaming service.
Months earlier, WarnerMedia chief Jason Kilar suffered a backlash after announcing that Warner's full slate of 2021 films would be released for free on its streaming service, HBO Max. director Denis Villeneuve described the move as a "hijacking", while director Christopher Nolan called HBO Max "the worst streaming service". Disney took a different tack, charging US$30 to stream Black Widow and other new movies. The surcharge would count towards the traditional box-office formula to pay Johansson and other stars' backend bonus.
Johansson sued Disney, accusing the company of breaching her contract and juicing its stock price at her expense. A bitter PR battle ensued, which Disney lost after blasting out a statement accusing the star of "callous disregard" for the effects of the pandemic. In doing so, the wholesome Mickey Mouse brand found itself pitted against gender-equity activists, not to mention the Hollywood creative establishment that had been watching with self-interest from the sidelines.
Talent and studio executives have been fighting over pay since before Louis B Mayer. But for a disagreement to become so public is rare. Even after Disney and Johansson settled in September, Chapek's critics cite the episode as an example of inexperience. It certainly illustrated a difference in style from Iger. Chapek has "sharper elbows than what you would say is [typical on] the entertainment side of Disney," says a former employee. "Probably more candid. Iger . . . will tell you what you want to hear, whether it's what he is going to do or not. Chapek will be much more straightforward."
Chapek's verdict is that the strategy worked: "It turned out to be great for us and our films, great for the artists in our films and good for Disney Plus."
Still, the halo around the streaming business has started to lose some of its shine since, even for industry darling Netflix. Investors are beginning to reassess the cost of the streaming arms race as America's media giants spend tens of billions each to secure a spot in the future of show business. Disney Plus arrived in the same six-month span as similar products from AT&T and Comcast, both of which own film and television studios. Though the great media wave is already washing over consumers, even more is on the way: Disney alone has said it will spend US$33 billion on content (including sports rights) in 2022, while Netflix is expected to spend US$22 billion and WarnerMedia US$18 billion. As longtime media analyst Michael Nathanson puts it, streaming "isn't a business for the faint of heart, the short-termers or those constricted by non-ethereal worries like free cash flow or net debt".
Few expect all of the current players to be left standing. "The fact is, people around the world five or 10 years from now are not going to pay for seven subscription services," says John Sloss, an entertainment lawyer at Sloss Eckhouse Dasti Haynes and head of Cinetic Media, a talent management and advisory agency. "Everyone is putting all their resources into being the survivor. There will be consolidation eventually and some will go out of business."
Despite these concerns, Chapek is still promising investors that Disney Plus will meet its target of up to 260m subscribers by 2024 as new programming begins to emerge from the pandemic production bottleneck. Some who know the company well are sceptical. "Netflix has a broader appeal than Disney Plus. Disney brands are powerful, but somewhat limiting," explains a former executive who worked on Disney's streaming launch. "It's going to be really hard to meet their target."
Some on Wall Street want Chapek to commit even further to streaming by severing Disney's ties with its traditional TV properties ABC and ESPN. Chapek counters that ESPN can thrive in the streaming era and will find new ways to grow as sports betting becomes more common in the US. "We feel the Disney brand is broad enough to have an ESPN business under our roof," he says.
Chapek last year launched a sweeping reorganisation of Disney's entertainment business, putting streaming at the centre. He formed a new group to determine how best to distribute its television programmes and feature films, effectively stripping the studio's chiefs of the authority to decide whether their work should debut on a streaming service or a "legacy" platform, such as TV or theatres. "If I left it to the individual creative groups in the company, everything would be going to the legacy platforms," Chapek says. "How do you grow [streaming] if everything goes to the legacy platforms? I had to make that move."
So he split off Disney's production unit from its distribution team, which would be consolidated under Kareem Daniel, a Disney veteran who had worked in the company's consumer products business. The plan was cheered by Wall Street, but Chapek's hiring choices were questioned internally. "Kareem had zero knowledge of streaming," notes a senior executive who left the company last year. Another former executive claims Disney under Chapek "became a club where the old members reasserted themselves. The only qualification they had was they had to have been around for 30 years at Disney and nowhere else."
Chapek defends the reorganisation, calling it "one of the best things I've done" and dismisses the criticism of Daniel, saying he values "talent over experience".
But Iger himself raised concerns with colleagues in the months after he handed Chapek the baton, according to three people familiar with the discussions. "He said the company was changing and he was concerned by the lack of innovation, the lack of strategy," says one senior executive who spoke with Iger in the spring of 2020. When asked why he didn't step in, Iger was said to have responded, "It's complicated".
Disney declined to comment on the Iger-Chapek relationship. But some insiders note that the two men communicate frequently and have appeared together in recent town halls. Iger also wished Chapek luck in his farewell note to staff.
It has been difficult for Iger to say goodbye. He delayed his retirement four times, receiving a bigger pay package with each extension. Even as Iger announced that Chapek would replace him, he extended his run at the company for almost two years by creating a position overseeing Disney's creative output, a job that will not be filled once he leaves.
Around the time that Iger was contemplating retirement for the first time circa 2011, he decided to pay a visit to Chapek, who was then running Disney's consumer products business. It was at this moment that Chapek first thought he might have a shot at running the company one day. "You go to see Bob," Chapek explains. "You go to see him. This was the first time he jumped into a car and drove 10 miles to our Glendale campus and came to see me. It was nothing that was said. It was just, this is a different dynamic."
Iger promoted Chapek a number of times, and the two seem to have bonded during the planning and opening of Shanghai Disney Resort in 2016, an enormously complicated undertaking that involved dealing with the highest ranks of the Chinese Communist party. In his memoir, Iger recounts working closely with Chapek in Shanghai when twin crises erupted back at home: a security threat in Orlando and a deadly alligator attack at Disney World.
Following the meeting in Glendale, Chapek says there were occasional "breadcrumbs" that he might be in the running, but nothing overt. He certainly increased the numbers: Chapek more than doubled operating income while running the consumer products division and delivered 13 per cent average earnings growth at parks and resorts.
By 2019, there was a list of candidates that included Chapek, Iger lieutenant Mayer and Peter Rice, a television executive who had joined the company through the Fox acquisition. That autumn, Iger told the Disney board he was finally ready to leave. "He is the kind of person who wanted to script his own exit and script it on a huge high," says a colleague who reckons that the initial success of Disney Plus provided the perfect moment. Iger had also told friends he wanted to get a job with the incoming Biden administration.
The horse race narrowed to two candidates — Mayer and Chapek — and the board, stacked with Iger loyalists, had effectively given him the final say. Iger and Mayer were viewed as a tag team, having co-engineered a series of transformative acquisitions. Mayer, nicknamed Buzz Lightyear for his energy, was the assumed frontrunner, having designed the streaming strategy that was, in Iger's own words, the future of the company.
So it came as a surprise to investors, the press and Mayer himself when Disney announced in February 2020 that Bob Iger was stepping down and that Bob Chapek would replace him. (Since then, the two have been referred to inside the company as "Bob I" and "Bob C".) Mayer had been kept in the dark. He tells friends that he holds no ill will towards Chapek and he remains close with Iger; the two speak a couple of times a week.
"It was Bob Iger's choice to pick Bob Chapek. He is his handpicked successor," says Horn, the producer and outgoing Studios head. "Bob Iger has been working with him for decades and I think he chose wisely. I think the most important criterion in selection of a leader of the Walt Disney Company is character and I think this guy is of good character." Horn then adds, "He's not Bob Iger. Bob Iger's an extremely tough act to follow."
A former Disney executive speculates that Iger chose Chapek because Mayer was too similar to himself. "In some ways Iger wanted someone who was different, so there was never confusion between the Iger Era and the Next Era."
Iger left a much stronger company than he inherited, thanks to a series of acquisitions: US$7.4 billion for Pixar in 2006, US$4 billion each for Marvel Entertainment and Lucasfilm over the next six years. His 2019 deal to buy Fox sealed his reputation as a master dealmaker. The result has been blockbusters such as Star Wars: The Force Awakens and Avengers: Endgame, but also criticism that Disney's franchise juggernauts have left less space for serious cinema.
Iger also instilled a top-down culture. All major decisions flowed through him. His top lieutenants, several of whom will follow Iger out the door this year, approached their job with a singular priority: "make sure no shit falls on Bob's lap", as a senior colleague puts it.
The question is whether Chapek will preserve that dynamic. "Is this the way [Chapek] will do it as well or is there going to be more operational independence? Initially people thought it would be the latter, but he seems to have continued the process of the former," the same colleague says.
If Iger's success was built on big acquisitions, Chapek sees his as being based on the convergence of entertainment and technology. This includes through the metaverse, a virtual reality space where users can interact that has been much discussed since Facebook announced it was reorienting itself around the concept and rebranding as Meta. "The PC was the first wave in the digital revolution, mobile was number two and the metaverse is the third," explains Chapek.
To drive this message home, Chapek convened about 25 leaders from around the company — including "storytellers, creatives, technologists, imagineers and commercial people" — on November 16 to discuss the possibility of a Disney metaverse. "This is a pivotal point in the company's storytelling history," he says. The meeting was held in old-fashioned reality, with a few participants dialling in via video chat.
Chapek sees himself as a disrupter and wants the metaverse meetings to create "connective tissue" between Disney's various micro-kingdoms. He wants them to be loose and open. "Given how broad the metaverse will be, we want people to go wild and dream," he says. "We're in the dreaming phase."
Chapek has never been a creature of Hollywood, leaving the mansions of Beverly Hills, Bel Air and Brentwood to the air-kiss set while choosing to raise his family outside LA. He has maintained his Midwestern reserve, keeping his personal life private and avoiding — or at least not actively seeking — the limelight. Associates say he has had little time for Hollywood's glad-handing.
His low profile stands in contrast not only with the outgoing Iger but with Discovery chief executive David Zaslav, who will take over WarnerMedia in mid-2022 once its US$43 billion deal with AT&T closes. With its broad offerings and original series, Warner's HBO Max is a serious competitor to Disney Plus. Zaslav hangs out with Bono, Oprah Winfrey and David Geffen, and has been assiduously courting talent in Los Angeles, where he has bought the Beverly Hills home of sainted Hollywood producer Robert Evans.
But when it comes to relationships with talent, agents say Chapek is still an unknown quantity. "How much is he going to consider the needs of the artists?" asks one industry insider. "I think he would acknowledge how important talent is to [Disney Plus]. So how much can he consider the priorities of the artists? That's very unknown."
Chapek is aware of such concerns. He says he's started taking meetings, making the social rounds and going out for dinners two or three evenings a week since Covid-19 restrictions eased. "He was not terribly well known in the movie industry or the TV industry, but I think he's clearly making himself available to have conversations with people," adds the insider.
Endeavor's Emanuel says the hand-wringing over Chapek's relationship with Hollywood is overdone. "Our interactions so far have been great," he says. "The minute he got in, he called us. He's taken care of our people financially, been generous in his accolades."
Chapek may have more of a chance to build ties with the creative community once Iger goes. After Chapek became CEO, Iger began giving him advice on running the creative side of the business, including inviting him to "script note" sessions with directors.
Chapek says he is "more than prepared now to take the reins in the creative sense" thanks to Iger's guidance. But he adds, "Most people forget I've spent almost two decades working at the movie studio. The players aren't strangers to me."
The post-Iger era is already beginning to take shape. A number of key members of his leadership team are following him out the door, including Horn, long-serving general counsel Alan Braverman and the formidable veteran communications chief Zenia Mucha, who will be replaced by former BP communications and advocacy head Geoff Morrell. Iger's successor as chair is Susan Arnold, a 14-year veteran of the Disney board and former executive at Carlyle Group and Procter & Gamble. Like Chapek, she has a background in consumer products.
Chapek says the departing executives have left an "indelible mark" on the company, but his top priorities — Disney Plus, creating the Disney metaverse — require a new focus.
"This evolution of our vision is going to be enabled and catalysed by fresh thinking."
Written by: Christopher Grimes and Anna Nicolaou
© Financial Times
