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Disney’s Bob Iger and the “health of the bundle”

Disney CEO Bob Iger Rings Closing Bell At New York Stock ExchangeDisney CEO Bob Iger Rings Closing Bell At New York Stock Exchange
He's delivered to investors, but how will Disney CEO Bob Iger deliver to customers in future? Spencer Platt--Getty Images

Two words stuck out during the Walt Disney Company’s (DIS) earnings call with analysts on Thursday afternoon: “Frozen” and “bundle.”

Frozen, the highest-grossing animated movie of all time, was an obvious highlight in CEO Bob Iger’s assessment of the company’s 2014 fiscal year (the biggest in Disney’s history). After all, the insanely popular movie about two heroic princesses helped boost sales and income across multiple business units, resulting in a record-breaking $48.8 billion in revenue across the company, an 8% increase from the year before.

Franchises like Frozen, Star Wars and the slew of Marvel comics-themed movies currently in the works, are key to Disney’s success. But so is the future of the so-called bundle, industry-speak for the way cable companies have packaged and sold huge blocks of channels for decades. (The word “bundle” came up 13 times during Disney’s one-hour call with analysts.)

Disney’s biggest moneymaker is its media networks division, which includes brands like ESPN, ABC and, of course, multiple flavors of the Disney Channel (Junior, Cinemagic and others). But with more and more viewers–especially younger audiences–turning to streaming services like Netflix and Amazon, the company is having to expand the way it reaches and sells to consumers more than ever before. At the same time, it can’t completely cut the cord with the traditional content delivery method, from which it makes most of its money.

Of course, Disney is no stranger to digital distribution. In fact, it was the first company to offer TV episodes for download on Apple’s iTunes store and the first to offer full-length shows for free online. It has a history of experimentation with technology and is already creating sports content and other shows specifically for newer digital platforms, including Netflix.

But CEO Iger, who recently had his contract with Disney extended through 2018, has to maintain a fine balance between pouring his might into new technologies and continuing to milk profits from the so-called bundle–not to mention not completely disrupting the status quo in his industry.

“We are going to continue to grow our digital offerings nicely,” Iger said during Thursday’s earnings call. “But we are also going to work really hard at making sure that the bundle is viable.”

Iger did admit that he is seeing “some modest erosion of the expanded basic bundle,” but he also said that over 100 million households still have some form of multi-channel packaged subscription. “It’s still clearly the dominant entertainment or television package in the home,” he said. “And we think that’s going to continue [for the] foreseeable future.”

As we’ve seen with the emergence of the smartphone though, new technologies sometimes spread much faster than companies anticipate. Last month HBO opened the floodgates even wider by announcing it would launch a standalone streaming service next year, which will allow viewers to watch HBO programming without paying for a cable subscription. The move is likely to open a Pandora’s Box: once the top is off, it will be tough for anyone to put it back on.

With a far broader reach than HBO (which has just over 30 million paying subscribers), Disney has an opportunity to lead with technology once again. But with the seemingly limitless power of its brands, it may think it has more space to see what new strategies work before adopting them.

It’s not yet clear how quickly Iger will charge ahead (he’s got until 2018 to show us). But he seems convinced that if the multi-channel bundle were to disappear, Disney would be well-positioned to bring more broadband-only products to market, and to harness the power of its valuable brands–Frozen included–regardless of the platform du jour. Other, smaller channels, says Iger, won’t fare as well under a new model.

“The product that is in danger [is] the product that is marginal in nature, that is either unbranded or does not have that kind of audience affinity,” Iger told investors on Thursday. “When you think about the health of the bundle, if the bundle were to fray or break up, everyone would suffer. The ones that will suffer the most are those smaller, less branded, less popular channels. By the way, they are not going to suffer, they are going to disappear. In an à la carte world, they completely disappear.”