The pressure on Disney is mounting. Their theme parks, hotels, shopping districts, and Disney Stores are all shut down. And because the movie theaters are all closed, Disney can’t even release their films, which are a huge driver of company revenue.
Well, they’ve got streaming, right? Yes, but their Disney+, HULU, and ESPN+ units all lose the company money and aren’t forecasted to start making money for years. This leaves Disney with some income from ABC and cable properties as well as some diminished revenue from consumer products (but folks trapped at home are purchasing far more necessities these days than luxury items). As a result, the trickle of revenue is not enough to put out the fire of debt at the moment.
To stem the tide, Disney has extended approximately $7 billion in debt offerings (more info in today’s Disneyland Update) to keep the lights on and pay off its other debt obligations. But at a time of little revenue, and even less hope that things will turn around soon, there have to be cost cuts.
Normally, Disney and other companies start their cuts at the bottom or in the middle ranks (and that may still be coming), but today Disney CEO, Bob Chapek, sent an email to his employees outlining the beginnings of cost containment plans that start with a cut in executive pay. (Portions of the letter are excerpted for you below)
“Dear Fellow Employee,
Our world is facing an unprecedented crisis that has fundamentally upended our lives, creating uncertainty and hardship – while, at the same time, spurring kindness and compassion. And although there are still many unknowns with respect to the impacts of COVID-19, our top priority remains your safety and well-being”
The letter continues:
“While I am confident we will get through this challenging period together and emerge even stronger, we must take necessary steps to manage the short and long term financial impact on our company.
In light of this, we are going to be implementing a variety of necessary measures designed to better position us to weather these extraordinary challenges. Among them, we will be asking our senior executives to help shoulder the burden by taking a reduction in pay – effective April 5, all VP’s, will have their salaries reduced by 20%, SVPs by 25%, and EVPs and above by 30%. I will be taking a 50% reduction in my salary. This temporary action will remain in effect until we foresee a substantive recovery in our business. Or executive chairman, Bob Iger, has chosen to forgo 100% of his salary.
As we navigate through these uncharted waters, we’re asking much of you and, as always, you are rising to the challenge and we appreciate your support. Your dedication and resilience during this difficult time are truly inspiring, and it gives me renewed confidence that we will come through this crisis even stronger than before, as we have so many times in our company’s history. “
Having the top executives lead by example is a really good start . . . Of course, it’s a way of softening the blow for more painful reductions in the lower ranks yet to come. Of particular interest is the line: “we are going to be implementing a variety of necessary measures designed to better position us to weather these extraordinary challenges,” which essentially spells out that the executive cuts are just the first step.
These are unsettling times, and big losses call for a big response. Disney shareholders will expect cost containment and staffing cuts while continuing to focus potential on revenue opportunities. And regardless of how big the total job losses and reductions in pay may ultimately be, Disney has taken the high ground this time around by starting those cuts at the top. It’s a model that we hope other companies will take as they also react to these crazy times.
Let’s Hear From You
While none of you should be surprised to hear about cuts at Disney, did it catch you off guard that this time they began the pain at the topmost ranks? How deep do you think the ultimate cuts will be in the company? We fully expect jobs will be lost, but given the unpredictable and rapidly changing nature of our nation’s shutdown, it’s very hard to predict just how much Disney needs to cut and how quickly they should do so. We look forward to hearing your thoughts.