Under Iger, Disney followed the individual “verticals” model. Its studios that conceived and produced the content were reportedly responsible for all costs, and free to choose whether the shows and films would appear first in theaters, on cable TV, or on Disney+ or
Hulu. The managers manufacturing entertainment owned their P&Ls. That system gave them a strong incentive to ensure that everything they produced brought the best margins, and to distribute the product to the platform where it would make the most money. But in October of 2020, new CEO Chapek imposed a sweeping reorganization that took the decision of where Disney would show movies or programs, or license them to other networks, away from the content chiefs. Instead, he transferred that authority to a new top-down corporate group called Disney Media and Entertainment and Distribution, or DMED. It appears that Chapek made the move to boost Disney’s all-out offensive in streaming. The idea was that the production chiefs couldn’t hold back their top programming from first being shown on say, Disney+, whose success was now Disney’s top priority.
The rise of DMED coincided with a steep ramp in Disney’s costs. It’s difficult to isolate its influence on expenses, but the new structure clearly weakened the production units’ incentive to economize, since they were selling their output to DMED, which was now responsible for how much revenue they gathered. In any case, Iger has judged Chapek’s gambit a failure. On the Q1 earnings call, he pledged a counter-reorg “aimed at returning greater authority to our creative leaders and making them accountable for how their content performs financially.” To Peltz and the analysts, Iger’s stance signals a return to the former, highly successful system where the studios held sway over their P&Ls. Peltz suggests that a recommendation to dump the matrix orientation was part of the 100-page manifesto that he pulled after Iger advanced a similar agenda. “The three words we dislike most,” he told me, “are ‘matrix’ and ‘unallocated overhead.’” Adds Peltz: “The role of the operating management is to grow sales, profit, and market share with very little corporate interference. The staff’s role is to assist operating management where requested, but not replace them!” The Trian boss seems cheered that Iger appears to be targeting the overhead problem as part of the campaign to lower costs by an impressive $5.5 billion.
