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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.’”
Conflict has arisen over the two things people in Hollywood care about most: the magic of movies and the colour of money
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 Ducksor 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 $71bn 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 $14bn 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 $20bn 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 streamingas 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.
Chapek has never been a creature of Hollywood, leaving the mansions of Beverly Hills and Bel Air to the air-kiss set
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 Black Widow 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 $20m for the role and expected to earn as much as $50m 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. Dune director Denis Villeneuve described the move as a “hijacking”, while Tenet director Christopher Nolan called HBO Max “the worst streaming service”. Disney took a different tack, charging $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 $33bn on content (including sports rights) in 2022, while Netflix is expected to spend $22bn and WarnerMedia $18bn. 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.”