Disney to cut 7,000 jobs and slash $5.5 billion in costs as it unveils vast restructuring

Disney said Wednesday it is planning to reorganize into three segments, while also cutting thousands of jobs and slashing costs.

The media and entertainment giant said it would now be made up of three divisions:

• Disney Entertainment, which includes most of its streaming and media operations
• An ESPN division that includes the TV network and the ESPN+ streaming service
• A Parks, Experiences and Products unit 

The move marks the most significant action Bob Iger has taken since returning to the company as CEO in November. Disney announced the changes minutes after it posted its most recent quarterly earnings. The announcements also come as Disney engages in a proxy fight with activist investor Nelson Peltz and his firm Trian Management.

“We are pleased that Disney is listening,” a Trian spokesperson said Wednesday.

On Wednesday, during its quarterly earnings call with investors, Disney also announced it would be cutting $5.5 billion in costs, which will be made up of $3 billion from content, excluding sports, and the remaining $2.5 billion from non-content cuts. Disney executives said about $1 billion in cost cutting was already underway since last quarter.

Disney also said it would be eliminating 7,000 jobs from its workforce. That would be about 3% of the roughly 220,000 people it employed as of Oct. 1, according to an SEC filing, with roughly 166,000 in the U.S. and about 54,000 internationally.

Disney’s stock rose about 5% in off-hours trading.

Media companies, such as Warner Bros. Discovery, have been pulling back on content spending and looking to make their streaming businesses profitable. Heightened competition has led to slowing subscriber growth, and companies have been looking to find new avenues of revenue growth. Some, like Disney+ and Netflix, have added cheaper, ad-supported options.

“We will take a very hard look at the cost of everything we make across television and film,” Iger said on a call with investors Wednesday.

The reorganization has been underway since Iger returned to the helm of Disney, replacing his hand-picked successor Bob Chapek.

The entertainment group will be led by top lieutenants Dana Walden and Alan Bergman, who are each considered contenders to take over for Iger in less than two years. ESPN Chairman Jimmy Pitaro will lead the ESPN segment, while Josh D’Amaro, already the head of Disney’s parks, experiences and products segment, will remain in control.

The future of ESPN under Disney’s ownership has been a question for sometime for investors. Last year, Third Point, which is led by activist investor Dan Loeb, had urged the company to spin out ESPN. Disney and Third Point later reached a deal, after reversing course on its thoughts for the future of ESPN.

Iger addressed speculation that the company may look to spin out ESPN due to the sports network being siloed into its own unit. He noted that while ESPN has been struggling due to cord-cutting, the ESPN brand and programming remains healthy and in-demand.

“We’re not engaged in any conversations or considering a spinoff of ESPN,” Iger said on Wednesday. He said the move was considered “in my absence,” and was concluded it wasn’t the right move for Disney.

Iger did note that he and Pitaro would be more selective on what it spends on sports rights, noting the upcoming negotiations for NBA rights.

Chapek’s removal came shortly after Disney had reported its fiscal fourth quarter earnings, disappointing on profit and certain key revenue segments. Chapek had also warned that Disney’s strong streaming numbers would taper off in the future. He had also told employees shortly thereafter that Disney would be cutting costs through hiring freezes, layoffs and other measures.

Shortly after his return, Iger sent a memo to employees announcing the business would be reorganized, particularly the Disney Media and Entertainment unit. The reorganization immediately meant the departure of Kareem Daniel, the head of the company’s previous media and entertainment unit, and right hand to Chapek. 

Iger had said he would put more “decision-making back in the hands of our creative teams and rationalize costs” at the time. The goal would be to have a new structure in place in the coming months, with elements of DMED remaining, CNBC reported. He added during a town hall that he wouldn’t lift the company’s hiring freeze as he reassessed Disney’s cost structure. 

On Wednesday, Iger again echoed those comments about returning control to the creative minds at the company.

“Our company is fueled by storytelling and creativity, and virtually every dollar we earn, every transaction, every interaction with our consumers, emanates from something creative,” Iger said Wednesday. “I have always believed that the best way to spur great creativity is to make sure the people who are managing the creative processes feel empowered.”

Editor’s note: This article was updated to reflect the correct number of Disney employees worldwide

Tune in to CNBC at 9 a.m. ET Thursday for an exclusive interview with Disney CEO Bob Iger.