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Disney’s Fight With Disruption

Disney yesterday became the first movie studio to sell over $7 billion of tickets worldwide in one year. The achievement caps an excellent year for Disney but obscures possibly more significant good news: CEO Bob Iger is fighting back against disruption and seems to be winning.

It isn’t supposed to be possible. When a big, old incumbent company gets technologically disrupted, not just by a smart competitor but by a broad shift in technology trends, it’s fate is almost certain: steady decline and eventual irrelevance. The spectacular opening of Disney’s Rogue One: A Star Wars Story over the weekend has for the moment masked the disruption threat to the company’s most profitable business, ESPN, but that threat is only intensifying.

ESPN is cable TV’s star performer, bringing in far more revenue than any other channel. Trouble is, viewers are increasingly ditching expensive cable bundles in favor of watching just what they want online. One result: ESPN is losing millions of subscribers, 621,000 of them in October, says Nielsen. Its staggeringly successful business model is falling apart. Earlier this month the business media were filled with speculation that ESPN would be spun off or otherwise disposed of.

That may yet happen, but investor sentiment appears to be brightening. “The issues with ESPN are turning around,” analyst Ivan Feinseth told CNBC yesterday. Last summer Disney bought a one-third interest in BAMTech, which helps media companies deliver content online; HBO is a customer. That purchase, says Feinseth, “will allow them to offer ESPN as a standalone service and to include it in skinny bundles,” which are small packages of channels offered by cable companies or online. Disney separately agreed to offer company-owned channels including ESPN, ABC, Disney Channel, and others in small bundles online via DirecTV. Iger told an earnings call last August that “we’re really quite neutral” about how consumers buy the company’s programming.

That may turn out to be no more than brave talk, or it may be that Iger is maneuvering this big old company into a winning position as technology disrupts its old model. It’s much too early to say. But he has simultaneously managed Disney’s movie studio into a powerfully dominant position with a consistent output of franchise hits based on Star Wars, Marvel comics characters (Iron Man, Spider-Man, Captain America), and Pixar animated series (Toy Story, Cars), plus a string of hugely successful princess movies (Moana, Frozen). Those films earn money not just from viewers but also in Disney theme parks and from merchandise licensees.

The stock rose again yesterday, about matching its high for the year after ESPN pessimism pushed it down into a trough in October. To repeat, it’s way too early for Iger to declare victory in the battle against disruption; that battle never ends unless you lose it. But five years ago it would have been much easier to foresee Disney in decline than to to see it booming. Iger’s example is worth studying.

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What We’re Reading Today

Berlin attack investigated as terrorism
Police announced that the attack, in which a truck driven through a crowded outdoor market killed 12 and injured dozens, was a “probable terrorist attack.” A suspect in custody is a refugee; German Chancellor Angela Merkel, who is running for a fourth term next year, has advocated acceptance of refugees. But it’s uncertain if the suspect drove the truck. BBC

Putin calls ambassador’s assassination a “provocation”
An off-duty Turkish police officer yelling “God is great” and “Don’t forget Aleppo” shot Russia’s ambassador to Turkey, Andrei Karlov, at an art exhibit. Russian President Vladimir Putin called the shooting a “provocation” meant to undermine growing Russian-Turkish ties and peace talks in Syria. The Guardian

The Electoral College makes it official
President-elect Donald Trump formally won the presidency yesterday as electors gave him a 305-to-232 victory. The margin of victory ranks 46th out of 58 in U.S. history, despite Trump calling it a landslide. Seven electors voted for someone other than Trump or Hillary Clinton, with former secretary of state Colin Powell receiving three electoral votes in Washington state.  Washington Post

Uber lost $800 million in the third quarter
Travis Kalanick‘s company hemorrhaged cash despite revenue of $1.7 billion. The loss would have been greater if not for proceeds from Uber’s sale of its China unit to Didi Chuxing. While Uber has claimed it’s profitable in the U.S., these numbers reported by The Information cast doubt on those statements.  Fortune

Building Better Leaders

Higher minimum wages…
…and longer parental leaves were among major changes in workers’ lives this year. Side-gigs also increased, with 20% of professionals on LinkedIn with a full-time job also listing freelance work on their profiles. Fast Company

University enrollment has dropped 1.4%…
…from last year, to 19 million, which is 1.6 million below the 2011 peak. Fortune

To meet deadlines more easily…
…be brutally honest about whether they’re realistic. If they’re not, don’t be shy about negotiating them.  Entrepreneur

Missteps?

Christine Lagarde convicted of negligence
A French court convicted the IMF chief in a case concerning a payout to a businessman while she was France’s finance minister. The conviction is surprising since even the prosecutor told the court that the evidence didn’t warrant it; but the court imposed no punishment. The IMF announced its continued support for her as chief.  The Telegraph

EU charges Facebook over WhatsApp purchase
The European Commission claims Mark Zuckerberg‘s company gave misleading information in seeking approval of its WhatsApp purchase in 2014, saying that matching accounts across the two platforms would be impossible. But the company recently announced it will share some WhatsApp phone numbers with Facebook. The company has until January 31 to respond to the allegations. Fortune

Trump’s Treasury Secretary pick has deep hedge fund ties
Steven Mnuchin brought billionaire investor John Paulson onboard as a Trump donor, but the connection could be a problem for Mnuchin’s confirmation. Shortly after Trump chose him, Mnuchin said he wants the government to exit its role in managing Fannie Mae and Freddie Mac, sending their stocks up. Paulson has large bets that the two companies will become fully private. NYT

Up or Out

Biogen has promoted chief commercial officer Michel Vounatsos to CEO.  Fortune

Lands’ End has named Jerome Griffith CEO, starting in March.  WSJ

Fortune Reads and Videos

Tim Cook explains why he attended the Trump tech summit
In a note to employees, he said the only way to advance Apple’s interests is to “engage.” Fortune

Alibaba is fighting fake reviews on its site…
…by suing companies that pay reviewers. Alibaba had been ambivalent on the issue because the fake reviews help drive up sales.  Fortune 

13% of Americans blocked or unfriended…
…people on social media because of political postings. Democrats were nearly three times more likely to hit the unfriend button after the election. Fortune

The success of Rogue One has made Walt Disney Studios…
…Hollywood’s first studio to surpass $7 billion in yearly worldwide ticket sales. Fortune

Quote of the Day

“Whether it’s in this country, or the European Union, or in China or South America, we engage…And we engage when we agree and we engage when we disagree. I think it’s very important to do that because you don’t change things by just yelling. You change things by showing everyone why your way is the best. In many ways, it’s a debate of ideas.” — Apple CEO Tim Cook on why he attended President-elect Donald Trump’s tech summit.  Fortune

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@ryanderous
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