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Disney’s CEO reveals his strategy for 2022 and beyond—including creating a metaverse with your favorite characters

January 14, 2022, 3:36 PM UTC

Wall Street was exactly wrong when it first judged the pandemic’s effect on the Walt Disney Co. in early 2020. Foreseeing empty movie theaters and deserted theme parks worldwide, analysts downgraded the company and investors hammered Disney stock. It plunged 40% in a matter of weeks, erasing years of gains.

That dismal moment was when Bob Chapek became CEO, succeeding the widely admired Bob Iger, who had run the company for 15 years. After a frightening month, the clouds lifted. Investors soon realized that while they were right about theaters and theme parks, they had entirely overlooked the power with which widespread lockdowns would turbocharge the Disney+ streaming service. As millions of workers and schoolchildren huddled at home, subscriptions rocketed. The stock reversed course, hitting a new all-time high by 2020’s end.

Yet even with the wind at his back, Chapek faced—and still faces—an epic strategic challenge: guiding one of the planet’s most valuable brands through a once-a-generation technology revolution. Streaming—a direct-to-consumer business that’s foreign to movie studios—has transformed Hollywood. “Right now, [consumers’] behavior tells us and our industry that the way they want to experience entertainment is changing—and changing fast thanks to technology and the pandemic,” he told Disney employees this month in a companywide memo. “We must evolve with our audience, not work against them.” That’s why Chapek reorganized the company around streaming in 2020—part of a far broader vision for the future.

Chapek, 61, grew up in Hammond, Ind., the son of a World War II veteran and a working mother. He has told investors that the family vacationed at Walt Disney World every year. In 27 years at Disney before becoming CEO he assembled an unusually diverse career, at various times running the theme parks, product licensing, film distribution, Disney stores, e-commerce, and more. “Bob is probably the best qualified person in the company to take this job,” media analyst Michael Nathanson told CNBC when Chapek became CEO. “His history in all the divisions that really matter is very supportive of him taking on that role.”

In an exclusive interview with Fortune, Chapek describes his expansive vision of combining Disney content with data to create his concept of a metaverse—a future that clearly energizes him. Asked why he’s so visibly enthusiastic about it, he replies, “If you can’t have fun making magic, then you can’t have fun.”

The strategy’s foundation: The business Disney is in

Peter Drucker, the great management writer, often confronted CEOs with a disarmingly simple yet deep and difficult question: What business are you in? Chapek’s answer: “We’re in the business of making magical memories that last a lifetime through storytelling, and then distributing those stories in a way that is as accessible and as personalized as possible for a global audience. It’s all about storytelling.” Note that he describes Disney’s business in two separate parts, storytelling and distributing. Which helps explain…

A massive reorganization

The key idea is combining all of Disney’s content production—movies, TV shows, live sports—with all of the company’s distribution operations into just one business segment; they were previously separate. (The other segment houses the parks, consumer products, and other experiences, such as Disney cruises.) The change may sound bureaucratic, but it’s actually a major effort to build a competitive advantage against Netflix, Alphabet’s YouTube, Amazon Prime Video, and other streamers. Chapek’s view: “I still think to this day it’s the most important thing I’ve done in my almost two years sitting in the seat.”

Here’s why. “This reorganization leads us to have the creative people focusing on what they do best, which is creating spectacular content that the world loves, and creating a lot more of it. There’s no reason to have them diverting their attention to an increasingly complex distribution world. Just three years ago, the biggest questions we had to ask ourselves were what date is a film going to come out on and what time slot did we want a television show to appear on? Now we have a whole host of issues that are sometimes competing with each other. That more complex world of distribution decision making should belong in the hands of people that practice that as a craft every day.”

Will a given project be most valuable on Disney+ or Hulu or some other Disney outlet? Should a movie open in theaters only (as West Side Story did) or on Disney+ only (the Pixar animated film Soul) or on both simultaneously (Black Widow)? The moviemakers won’t decide. “It just seemed to me that if we really were going to put our eggs in the direct-to-consumer basket, we needed an organizational structure that feeds that in a way that holds no deference necessarily to the legacy businesses, but objectively assesses what [content’s] true potential is, not only for today, but also for tomorrow. We had to have everybody rowing in the same direction inside the Walt Disney Company.”

The potential rewards—and unprecedented demands—of Disney+

Success in streaming requires staggering amounts of content, and no competitor has come close to matching Netflix so far. Disney announced in late 2020 that it would double its output—“a big, tall task,” Chapek says. Analyst Nathanson wrote last month, before Disney’s additional content had started to appear, “Especially to compete against Netflix, we believe Disney needs to ramp up content investment.”

Chapek sees an upside to spending additional billions. “Our consumers seem to have an almost insatiable desire for great content. That requires us to amp up our production output, but that’s good news. That means they like what we’re giving them and they want even more. And we’ve got an unlimited ability to provide that content through our direct-to-consumer platforms, as opposed to saying, “What are you going to do for your title on Thanksgiving week?” Now we’ve got an endless turntable of options that we can customize to our fan base, depending on what they’re looking for.”

How more at-bats can yield more hits

“I dare say we’d never have something like a WandaVision if we didn’t have a Disney+,” Chapek says. For those uninitiated into the Marvel Cinematic Universe, Disney’s name for its hugely successful Marvel Comics–based movie franchise, WandaVision is a Disney+ series based on two minor characters from the Avengers films. Wanda Maximoff, also known as the Scarlet Witch, can perform magic and alter reality; Vision is an android created by artificial intelligence who was killed off in a 2018 film. In WandaVision, they live as a couple in suburban New Jersey.

As Chapek aptly observes, “I mean, if you have a certain limited number of at-bats, are you going to take a flier on a concept like that?” Yet the series won three Primetime Emmys, and a spinoff is in development.

The goal: A Disney metaverse

Chapek’s idea of a metaverse isn’t the conventional notion of an immersive digital world experienced through a virtual reality headset. His vision combines all the elements of Disney in a way no current competitor can match, telling a given story in every medium of communication, including in person at the parks and in theaters. “What happens when you take digital storytelling and blend it with physical storytelling, like in a metaverse where it’s a three-dimensional canvas that gets painted? It’s without regard to heretofore definitions of media. It’s a book, it’s a game, it’s a movie, it’s an episodic TV show—forget all that. For our storytellers it’s like taking out the lane markers in the swimming pool and saying you have the whole pool to swim in.”

The key to making it all work

It’s data. “The precursor to everything we’re talking about with the metaverse and this customer-personalized blending of physical and digital is the database. We’ve been collecting very deep, rich data for a long time from our parks.” Chapek launched extensive personalized data-gathering when he ran the parks, and now Disney+ offers much more. “When you sign on to Disney+, we know who you are. We’ve got volumes of hard data that tells us exactly what were the first streams, when did the first streams come on, how long did people watch, how many times did they watch? We’ve got a combination of broad data and deep data, and once we tie those together in one common database, we can do an even better job of customizing the experience for the consumer, regardless of whether they started in a park or at home watching Disney+ or anywhere in between.”

Chapek’s long-term objective

The company’s hundredth anniversary next year has got Chapek thinking in decades, not years.

“We want to harness technology to tell different and better stories and continue the legacy that Walt started. For me personally it’s making the pivot to setting up the company for success for the next 100 years. It’s not a short-term thing.”

Fortune’s upcoming Brainstorm Design conference is going to dive into how businesses are building experiences in the metaverse. Apply to attend the event on May 23-24 in New York.