By Erich Schwartzel
Two decades before Bob Chapek was named chief executive of Walt
Disney Co., he identified an unlikely cash gusher: a pack of
adorable, talking golden retrievers.
Mr. Chapek was the head of Disney's home-entertainment division,
then riding high on consumers' seemingly limitless appetite for
DVDs. After successfully pumping out direct-to-video sequels to
beloved classics like "Bambi" and "The Lion King," Mr. Chapek
sensed an opportunity with "Air Bud," a 1997 hit film about a
basketball-playing dog.
DVDs of the "Air Bud" universe proliferated for 10 sequels and
spinoffs released between 1998 and 2013. "Space Buddies," "Seventh
Inning Fetch," "Snow Buddies" and other titles earned millions for
the company. Though nearly all the "Disney Buddies" films were
released straight to home video, Mr. Chapek spent extra on
orchestral scores, elaborate marketing campaigns and other
embellishments usually reserved for major theatrical releases.
Today, the same instincts are benefiting Mr. Chapek as he
shepherds Disney's transition into the streaming age. Much as he
did then, Mr. Chapek today must navigate considerable disruption
and bridge the old -- a library of classic films, TV shows and
franchises -- with the new: a streaming service considered by Wall
Street to be the lifeblood and future of the world's largest
entertainment company.
"Everything he's doing are things that we did, only in the
home-entertainment area," said Robert Vince, chief executive of Air
Bud Entertainment and a producer on all of the "Buddies" films.
Disney declined to make Mr. Chapek available for an
interview.
Raising the stakes dramatically: a global pandemic that hit just
as Mr. Chapek ascended to the top job, and that has wreaked havoc
on Disney's traditional core businesses, shuttering movie theaters
and theme parks.
The spread of Covid-19 has accelerated plans, first outlined in
2017 by then-CEO Robert Iger, to make the Disney+ service a focal
point of Disney's entertainment divisions. Mr. Chapek, in his first
year on the job, has restructured the company to give it even more
of a starring role.
In the 15 months since Disney+ launched, the company is again
leaning on an established library of characters, most successfully
in the form of big-budget series like "The Mandalorian," about Star
Wars characters, and "WandaVision," featuring Marvel heroes.
Sequels, spinoffs and reboots of older Disney material like "High
School Musical" and "Toy Story" have helped the service outpace
Wall Street projections; it is expected to top 260 million
subscribers world-wide by 2024.
Even apart from the pandemic, Mr. Chapek faces a unique set of
challenges. As an executive rising the ranks, he earned praise for
cost-cutting and a focus on the bottom line, but he now runs a
company that also relies on personal relationships and preserving
fan loyalty toward the world's biggest and most beloved
entertainment company.
This month marks one year since Mr. Chapek, 60 years old, was
handed the top job, ending a yearslong succession drama at Disney.
Taking the reins from Mr. Iger, who had been CEO for 15 years,
would always mean being the following act to one of the most
revered executives in the world. No associate would describe Mr.
Chapek, whose career has included stops running Disney's
consumer-products and theme-park divisions, as Mr. Hollywood. But
that may suit today's entertainment industry, which is far more
consumed with flowcharts, distribution strategy and couch-potatoing
than with power lunches, big-screen premieres and red-carpet glitz.
His history in home entertainment seems well-suited to a time when
most people are stuck inside.
Almost immediately after receiving the promotion, Mr. Chapek was
consumed with weathering the pandemic, which hit Disney's core
legacy businesses swiftly and hard.
In March, about three weeks after he was named CEO, with the
coronavirus tearing through the global population, Disney theme
parks closed around the world and movie theaters stopped operating.
Mr. Chapek took a drastic pay cut that same month -- and, in an
email addressed "Dear Fellow Employee," told dozens of other
high-ranking executives that they would be taking one, too. In
April, he furloughed 100,000 of Disney's more than 200,000
employees.
In August, he pushed the premiere of a $200 million live-action
remake of "Mulan" from theaters to Disney+, charging viewers $30 on
top of their $6.99 monthly subscription fee. In September, a member
of Congress lambasted Disney for filming "Mulan" in the Chinese
province of Xinjiang, where human-rights organizations and Western
governments have accused China of rounding up members of the Muslim
Uighur minority in concentration camps.
In October, he announced an overhaul of the company's corporate
structure that was designed to make streaming the priority but also
confused key business partners in Hollywood. In November, he got in
a public spat with California Gov. Gavin Newsom about how soon
Disneyland could reopen.
Disney's stock has been on a similarly eventful journey. In
mid-March, shares fell to their lowest price since 2014. But Wall
Street has since brushed aside a series of miserable earnings
reports, including the company's first quarterly loss in nearly two
decades, heartened by the company's focus on streaming. In
December, its stock price reached an all-time high after Mr. Chapek
unveiled a trove of upcoming programming and bullish new
projections for Disney+. Company shares now hover around $180
apiece, more than double their low point in March.
Focus on the bottom line
Mr. Chapek's tenure as CEO has so far been somewhat overshadowed
by Mr. Iger, with his well-established connections to the creative
community and throughout the company he's helped lead for
decades.
"Bob I.," as he is now known internally by employees to
distinguish the two executives, remains with the company as
executive chairman, overseeing creative matters and popping into
meetings to discuss scripts and possible projects, while Mr. Chapek
focuses on managing pandemic-ravaged divisions and reorganizing the
company to bring it in line with his priorities.
Mr. Chapek is less comfortable in the spotlight than Mr. Iger,
but the arrangement leaves little doubt as to who will ultimately
be running Disney, avoiding the drama of previous, failed attempts
at succession planning. And it fulfills Mr. Iger's desire to spend
a final few years focused on creative matters, without the
distraction of day-to-day operations.
Though Mr. Chapek often talks of childhood trips to Walt Disney
World, he is not among those workers who describe themselves as
having "pixie dust in the veins." At a company where employees
regularly quote founder Walt Disney in meetings "like he's the
Dalai Lama," said one former executive, Mr. Chapek is less beholden
to the past.
"He's not drinking from the myth of Walt," this former executive
said.
When Mr. Iger was named CEO in 2005, he, too, confronted
industry skepticism about his creative chops. Today he is well
known for weighing in on script rewrites, watching TV pilots and
dictating details for theme-park attractions. Ahead of the 2019
opening of a Star Wars-themed area at Disney's U.S. theme parks,
for instance, Mr. Iger scrapped more than a year's design work and
ordered the company's "Imagineers" to set the attraction on a
different planet, according to a person familiar with the
situation.
Mr. Chapek doesn't speak that language as easily, colleagues
say, and is more likely to ask about budget items on an attraction
than the thematic motivation behind it. When it came to movies
during his days in the direct-to-DVD boom, he focused on how a
given title could be marketed before he'd hear its story. He grew
excited about "Space Buddies," for instance, when Mr. Vince showed
him a mock-up poster of puppies dressed as astronauts. Another
associate said Mr. Chapek did have creative input for the
franchise. It was his idea, this person said, to have the dogs
talk.
When it came to maintaining good relationships with directors
and other creative partners, he was happy to have subordinates do
it, former colleagues say. To Mr. Chapek, concerns like talent
relations and the company's public image were secondary to making
money for shareholders.
Mr. Chapek's focus on the bottom line could antagonize directors
and producers who sometimes chafed at budgetary constraints, former
colleagues say. When a movie was approved as a direct-to-DVD
release, Disney had to keep a lid on costs for it to remain
profitable -- a tricky balancing act that required making cheaper
movies that didn't tarnish the overall brand. But Mr. Chapek
thought the company could thread the needle and make films that
were good enough to protect the Disney brand while also making
money.
This DVD will self-destruct
The young Bob Chapek didn't grow up with his eye on show
business. A self-described "latchkey kid" from Hammond, Ind., a
small city near the Michigan border, he studied microbiology at
Indiana University before receiving an MBA from Michigan State. His
mother worked in an insurance firm and his father was a
machinist.
"Coming from Hammond, the first thing you consider when thinking
about a career is not necessarily working for Disney in Hollywood,"
he told his hometown newspaper, the Northwest Indiana Times, in
2006.
Mr. Chapek joined Disney after stints at companies like H.J.
Heinz. When he joined Disney's home-entertainment division in 1993,
he was merely staying in the packaged-goods business, he has
said.
At Disney, Mr. Chapek oversaw a booming home-video business
buoyed by the "Disney vault" strategy, which released beloved
titles for limited periods before removing them from stores. The
intentional scarcity resulted in an unintentional side effect: a
black market for hard-to-find VHS copies of movies like "The Little
Mermaid," which could fetch as much as $300 each. When a new movie
was released from the vault, consumers would rush to buy it --
often because Mr. Chapek's team had added special features like
interviews with cast members that made the newest version seem like
a necessity to hard-core fans.
With DVDs, Mr. Chapek had the chance to look at the Disney
library and find well-known characters, like Tinker Bell or Bambi,
and recycle them in new stories that turned easy profits.
Mr. Chapek also released original titles that skipped the
theater, another way to capitalize on the home-video craze. The
challenge became convincing consumers that these at-home options
were viable alternatives to the theatrical experience.
"The retail outlet is the first venue for consumers to view
these movies, " he said in a 1998 interview. "The premiere is
actually taking place in the store."
Mr. Chapek embraced technological solutions to vexing problems,
not always successfully. In 2003, he oversaw the development of a
DVD that self-destructed after 48 hours, an alternative to rentals
that he believed would appeal to consumers who wanted to avoid
repeat trips to the video store and late fees. The technology,
marketed as eZ-D, did not prove economically viable, and
environmentalists protested outside a 7-Eleven in Texas that sold
the disposable discs for $7 apiece.
In a preview of today's battles over streaming, Mr. Chapek
didn't seem to mind that promoting at-home movies as viable
alternatives to the cinema angered theater owners, especially when
the DVD became the single-fastest entertainment technology adopted
by the market. Starting with the 2010 live-action remake of "Alice
in Wonderland," Mr. Chapek pushed DVDs' release dates closer to the
movie's theatrical debut, further alienating theater operators.
When the industry years later was divided over whether to
support HD-DVD or Blu-ray as the next generation of home
entertainment, Mr. Chapek loudly backed Blu-ray, since he thought
it would offer Disney the better chance to pitch consumers on yet
another format and sell copies of movies many already owned on VHS
or DVD. He even sent a "Magical Blu-ray Tour" to seven cities
across the U.S. in 2008 to educate consumers on the technology.
Even before Hollywood embraced the notion of
"direct-to-consumer" businesses -- streaming services like Disney+
and HBO Max that allow studios to circumvent theater owners and
other middlemen -- Mr. Chapek had little patience for legacy deals
that kept Disney from dealing directly with consumers. Mr. Chapek
led discussions about a Disney subscription service as early as
2007, former colleagues say, but existing deals with TV networks
meant rights weren't available for crucial movies that such a
service would have needed to launch.
In 2011, Mr. Iger pulled Mr. Chapek out of his
movie-distribution job and put him in charge of Disney Consumer
Products, which sells toys, clothes and books. It was part of Mr.
Iger's succession-planning strategy, which involved placing CEO
candidates atop parts of the company where they had little
expertise as a way of seeing how they might adapt to the biggest
job of all.
In the new role, Mr. Chapek won favor with his bosses by
reorganizing the division around brands like Mickey Mouse, the
Disney princesses and Star Wars, rather than around categories like
housewares or action figures. The old arrangement led separate
product divisions to chase each new movie or TV show in an attempt
to hit their numbers in a given category. Mr. Chapek's new setup
gave subordinates an incentive to keep an eye on each franchise's
overall health.
The overhaul disrupted years of business for Disney's consumer
products team -- internal critics said it felt like Mr. Chapek
couldn't resist reorganizing any division he ran -- and led to
layoffs and turf wars. But it was a hit with Mr. Chapek's boss, Mr.
Iger, who was busy organizing the company around the brands --
Disney Animation, Pixar Animation, Marvel Studios and Lucasfilm --
that had defined his tenure as CEO.
After taking over Disney's theme-park division in 2015, Mr.
Chapek raised prices -- and started charging even more on holidays
and other popular times that strained capacity at the parks. The
division's profits grew at a rapid clip, even if die-hard Disney
fans complained about the higher ticket prices.
"He's done well because he's able to make those unemotional
decisions," said one colleague who worked in consumer products at
the time.
Full stream ahead
The reorganization of consumer products now seems like a prelude
to the biggest stamp Mr. Chapek has put on Disney since taking over
as CEO: an across-the-board separation between those who make
Disney's movies and TV shows and those who decide whether they will
premiere in theaters, on a TV network or on Disney+.
As with his reorganization of consumer products, Mr. Chapek
wants those who produce entertainment not to worry about how it is
distributed. But that undoes years of business in Hollywood, where
the same executives have typically overseen both storytelling and
the allocation of production and marketing budgets. Similar
restructurings at AT&T Inc.'s Warner Bros. and other studios
have forced a recalibration of Hollywood power centers, with
agents, actors and directors not knowing who will ultimately decide
how their movie or TV show is viewed -- or their salaries
calculated.
Mr. Iger has told associates he disagrees with some of Mr.
Chapek's organizational choices, according to a person familiar
with the matter. Insiders say the studio overhaul has also inflamed
some of the worst aspects of Disney's political corporate culture,
with fiefs like Marvel or Lucasfilm now having to lobby colleagues
in other divisions for greater control of how their products are
distributed.
For Wall Street, the focus is on attracting and retaining
Disney+ subscribers. One former executive with the streaming
service said the next wave of growth will likely need to come
largely from overseas audiences, since the service gained U.S.
subscribers more quickly in its first few months than initial
projections had anticipated. Disney+ had 95 million subscribers as
of early January. Moving "Mulan" and other would-be theatrical
releases like "Hamilton" to the service have provided subscription
boosts, this person added.
Mr. Chapek and his team have announced dozens of new shows and
movies designed to attract and retain subscribers. In many ways, it
is a programming slate that looks a lot like his direct-to-DVD days
-- even once again turning to Tinker Bell for a new take on "Peter
Pan."
For Mr. Vince, the "Air Bud" producer, the strategy comes as
little surprise. The two men caught up shortly before Mr. Chapek
was named CEO. Mr. Chapek wasn't involved in Disney+ at the time,
but he had a read on where the company was going, he told Mr.
Vince.
"They're in the home-entertainment business and they don't know
it yet," Mr. Chapek said.
Write to Erich Schwartzel at erich.schwartzel@wsj.com
(END) Dow Jones Newswires
February 20, 2021 00:14 ET (05:14 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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