Though physicists tell us time travel is impossible, two recent events are tempting me to believe in it anyway. The first is the news that Michael Lewis, America’s most successful business writer, began following Sam Bankman-Fried around six months before SBF’s crypto empire collapsed into dust and recriminations. The second is the announcement that Bob Iger, the former chief executive of Disney, has returned to the company’s helm, ousting successor Bob Chapek.
In the annals of show business, few actors have managed Iger’s perfect timing. He stepped down in February 2020, leaving Chapek to negotiate a pandemic that shuttered movie theaters and the company’s iconic theme park and cruise businesses. Chapek got to shepherd Iger’s streaming strategy through its early growing pains, losing gobs of money on content in hopes of eventually creating a loyal audience of subscribers who could be milked for higher fees. Then, when interest rates rose, consumers pulled back, and the streaming business panicked investors by unexpectedly losing $1.5 billion in the fourth quarter, a restive Disney board brought Iger back to play returning hero.
Tough luck for Chapek, who is mostly getting punished for the misfortune of a bad economic environment. But providential for Iger, who neatly avoided the hardest work and can now claim credit for any successes. To be fair, it might also be providential for shareholders. Because along with his exquisite sense of timing, Iger has a great talent for dealmaking — and the streaming market desperately needs some mergers.
At the moment, starting a streaming service is an excellent way to lose a bunch of money. Netflix, the ur-streamer, is making a decent profit. But the prospect of Netflix-level earnings has lured a lot of competitors into the market — as has the fear of watching Netflix destroy one’s legacy entertainment business.
To gain subscribers, every competitor needs to provide original content; otherwise, people might subscribe for a month or two, watch the whole back catalogue and then cancel. But all this competition has fragmented the market to the point where hardly any company can amass enough subscribers to justify its investment. In a recent investor letter, Netflix said it reckons that all its main competitors are losing money, to the collective tune of $10 billion in 2022 operating losses.
Yet this fierce competition hasn’t made the streaming market a consumer’s paradise either. The original cord-cutters dreamed of having the world’s entertainment library placed at their fingertips for a modest monthly fee. Today, to get that kind of access, you’d have to subscribe to at least 10 services, each of which wants $5 to $15.50 a month. While this system creates some consumer benefits, in the form of more high-quality scripted shows, it also produces a huge amount of inconvenience — it’s hard to find what you want to watch across a dozen platforms — and quite a bit of expense.
This is an industry ripe for consolidation. The streaming entertainment business has huge economies of scale: Once you’ve built a platform and created content for it, it costs little to serve it to more customers. This is a business model that works best with a few companies that can amortize their investment costs over lots and lots of subscribers — more profits, but also the ability to set lower consumer prices.
Such consolidation would have some drawbacks, since fewer firms means each one has more market power over both consumers and workers. But it simply isn’t sustainable to have 10 major streaming services. Even with the backing of major media companies, they cannot go on losing hundreds of millions of dollars year after year.
It makes better sense for them to merge into a few big libraries that collectively hold most of the world’s English-language entertainment, and a large chunk of its foreign films and television shows. In fact, that process has already started: Last year, Discovery Networks bought WarnerMedia, and reportedly plans to merge HBO and Discovery Plus into a single service sometime next summer. Disney offers a $20 bundle with Disney Plus, Hulu and ESPN Plus ($14 if you are willing to watch ads).
But much more consolidation is needed, and Iger might just be the man to deliver it. He is, after all, the chief executive who oversaw Disney’s acquisitions of Pixar, Marvel, Lucasfilm and 20th Century Fox, making the company the undisputed king of franchise intellectual property.
This time around, to be sure, Iger will face tougher regulatory scrutiny: The Biden administration has adopted a much tougher antitrust stance than its predecessors. He’ll also have some financial constraints, since high interest rates and falling stock prices make it harder to offer potential acquisitions an attractive price. But however hard his job turns out to be, Iger will still have it easier than poor Bob Chapek did, stepping into the C-suite just in time for the pandemic.