It ain’t easy being the Mouse: Disney results show promise but there’s a tough road ahead
Posting strong earnings on Tuesday, including the first-ever profit of its much-maligned streaming service, The Walt Disney Corp. should have had a banner day. Revenue and profits beat the company’s own projections, and revenue was up 10 percent at the “experiences” division that manages theme parks, resorts and cruise ships. Instead, shares plunged nearly 10 percent that day, after rising 29 percent since January.
So what’s going on in Mickeyville?
These are turbulent times in the entertainment business. Linear broadcasting (what we used to call TV) is in decline. Film studios need to take ever bigger risks on ever-bigger-budget pictures in an era when the highly profitable movie theater business is down by nearly half from pre-pandemic levels, and Disney hasn’t had a major hit since 2019.
Disney’s flagship news unit, ABC News, is in turmoil after president Kim Godwin, the first Black woman to lead a network news organization, resigned following a corporate review and criticism of her leadership style.
At the parks and cruise ships unit, Disney finance chief Hugh Johnson said the post-pandemic travel catch-up boom is ending, offering a troubled outlook for that division over the next few years. All these problems are grist for the mill of Bob Iger, the Disney CEO who came back to the company in 2022 after ending a 15-year run as chief in 2020. Iger was largely responsible for putting new life into Disney’s tired brand, opening theme parks in Asia, and reviving Disney’s movie studio with the purchases of Pixar, Marvel and George Lucas’ Star Wars and Indiana Jones franchises.
This year, Iger did manage to boot corporate takeover titan Nelson Peltz who was angling to get a seat on Disney’s board and oust Iger. But Disney is also suffering from a disease that’s infected Hollywood: Netflix impostor syndrome. Now that every entertainment company has its own streaming channel, they all want to cash in the way Netflix has with its 240 million subscribers and 25 percent net profit margin (Disney’s was 1.9 percent in the last quarter). But the growing propensity of consumers to cut the cable cord, ditching the bundled services that were so profitable for studios, has created a turbulent business as streaming becomes viewers’ favorite medium. And Disney’s streaming success is tenuous: A recent survey by Forbes showed 44 percent of respondents would drop Disney+ if its price increased, making it the most likely to be abandoned of the major streaming services. That prompted a rare pause in the streaming wars, with Disney teaming up with Warner Bros. Discovery’s Max to offer a triple-play streaming service including Disney+ and Disney-owned Hulu.
In Sam Bankman-Fried’s world of crypto fraud, everyone gets paid back
Investors who got fleeced in the collapse of the crypto trading house FTX have a lot to celebrate. Fleecer-in-chief Sam Bankman-Fried faces a 25-year sentence in a Northern California prison, and must provide some measure of vindication for his investors. But now comes word from the lawyers for the shell of FTX that Bankman-Fried left behind that every investor will get back what they put into the exchange.
What? How can that be? Depositors only got all their money back when Silicon Valley Bank went under because the government declared SVB’s failure a systemic risk, and the deposits were guaranteed by the federal government. Plus, SVB had real assets like hard currency when it went under, compared with FTX’s stash which was almost entirely in highly volatile cryptocurrency.
But somehow bankruptcy experts and government agencies in the U.S., Australia and the Bahamas were able to recover everything that FTX held when it went down in November 2022, clawing back a total of between $14.5 and $16.3 billion. That’s astounding, because FTX only had about 0.1 percent of the bitcoin and 1.2 percent of the Ethereum investors believed it held when it filed for Chapter 11 bankruptcy.
Despite Bankman-Fried’s crimes, some of his investments with other people’s money paid off. Under the direction of the main bankruptcy trustee, John J. Ray III, a $500 million investment that Bankman-Fried made into the artificial intelligence company Anthropic rode the AI boom, and Ray’s team sold two-thirds of FTX’s stake for $884 million. Ray also clawed back $400 million from a hedge fund called Modulo Capital, and $200 million in Bahamas real estate, including a $16 million home that Bankman-Fried had given to his parents.
All of that is good news for people who had deposited their cryptocurrency with FTX. If you lost $50,000 or less in 2022 you’re part of a special “convenience class” — 98 percent of those members will get back 118 percent of what they had in FTX at the time.
The big losers? The government. The IRS is waiving $24 billion in unpaid taxes for $200 million in cash and a claim for $685 million more that will only be paid once all other creditors get their money. The other loser? Well, it depends how you look at the situation. Depositors will get back what a bitcoin was worth in November, 2022 — a bit less than $20,000. If they’d been able to hold the coin, it’d be worth more than $60,000 today.
Did Elon Musk commit securities fraud with his claims that Teslas will drive you to work while you sleep?
One of the great selling points of Tesla’s, and what made Elon Musk such a visionary, was the idea that Tesla’s electric cars would revolutionize the world of transportation by driving themselves.
“I’m quite confident that in three years the car will be able to take you from point to point. Basically from your driveway to your work without touching anything. You could be asleep the whole time, and do so very safely,” Musk said at an event in Palo Alto in 2015. For over nearly a decade, similar statements, X posts and videos have Musk touting the self-driving ability of Tesla cars.
In the meantime, a running tally kept by the website TeslaDeaths.com, citing government data, shows 44 people have died in crashes linked to Tesla’s autopilot since its release in 2015. Now, prosecutors are examining whether Tesla committed securities or wire fraud by misleading investors and consumers about the electric vehicles self-driving ability. And while Tesla warns drivers to be prepared to take over driving, the U.S. Justice Department is looking at other statements by Tesla and Musk suggesting the cars can drive themselves.
The investigation into Tesla autopilot deaths was first reported in 2022, but the wire and securities fraud investigations are new and could potentially result in criminal charges against Musk. That could do significant damage to a brand built largely around the personality of its owner. In an earlier rebuttal, his attorneys suggested making allowances for their often-hyperbolic client: “Mere failure to realize a long-term, aspirational goal is not fraud.”
Add to that pressure from the National Highway Traffic Safety Administration for Tesla to cough up info about changes it was supposed to make to part of the self-driving system. Tesla has until July 1 to hand over information to the regulator or face a fine of 135 million, CNBC reported. The regulators found 20 Tesla crashes since the company supposedly fixed the self-driving issue. Meanwhile, Tesla has been throwing shade on its own future. After a whirlwind visit to China last month where Musk met the country’s prime minister and talked about boosting his presence in the world’s most populous country, Tesla announced it was laying off about 14,000 people, or 10 percent of its global workforce. Among the cuts? Most of the group that works on charging stations, and if Tesla can’t roll out charging stations, it will be hard to sell more cars. The company also quietly removed all but three job postings from its North American website. That prompted Rich Otto, the head of product launches at Tesla to throw in the towel, saying that working at the company had “taken its pound of flesh.” He also offered a dire warning for Tesla’s future:
“Great companies are made up of equal parts great people and great products, and the latter are only possible when its people are thriving,” Otto wrote in a LinkedIn post. “The recent layoffs that are rocking the company and its morale have thrown this harmony out of balance and it’s hard to see the long game.”
Social Security is running out of money
If you were born in 1968 or later, forget about retiring. According to the latest report from the trustees charged with keeping Social Security and Medicare solvent, America’s national pension system will start stiffing seniors in 2033. That’s when anyone born in the year The Beatles topped the charts with “Hey Jude” (1968) turns 65 and can begin tapping into their Social Security. You’ll have three more years to tap your retiree health benefits before the Medicare Hospital Insurance Trust Fund is unable to pay all its bills.
And that’s the good news…
Previous reports said the funds would dry up earlier, with Medicare running short on cash in 2031, but thanks to robust job growth and rising wages since the pandemic ended, the Social Security Old-Age & Survivors Insurance Trust Fund, which pays retiree benefits, the Disability Insurance Trust Fund and Medicare will be able to collectively stretch another year. It’s not that the money dries up all at once. Social Security, for instance, will only pay 79 percent of the benefits that recipients earned. Medicare will start paying only 89 percent of its scheduled benefits for hospital stays, hospice and nursing home care and follow-up visits after hospitalization.
President Biden has vowed to keep strengthening the programs, which are paid for from taxes on paychecks. But it all depends on Congress agreeing to raise the limit on social security tax. Right now, any income above $168,600 avoids the 12.4 percent social security tax (split equally between employee and employer, unless you’re a gig worker and then you have to pay all of it). But every retiree, no matter how much they earn, can tap those benefits at age 65.
How did we get here? Over the past few years as inflation and cost-of-living allowances outpaced the growth of wages and payrolls, the cost of Social Security and Medicare has outpaced the tax income. That has meant that the programs have had to rely on the Trust Funds, a reserve built up in recent decades, to pay their bills. In 2023, the balance of the Social Security trust funds declined by roughly $41 billion, and that’s the money that’s running out.
Republicans, including Donald Trump, have said they want to cut entitlements including Social Security, a threat they have always walked back. For good reason: according to an annual survey by Gallup, roughly a third of Americans say they expect to rely on Social Security for a major portion of their income, and 61 percent say the way to save the system is by raising taxes.
The funds’ trustees, which include Treasury Secretary Janet Yellen, wrote that fixing the problem is up to Congress:
“Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare,” the trustees wrote.
TikTok strikes back
TiKTok is mad. The Chinese-owned company says the law Congress passed last month requiring its U.S. operation be sold to a U.S. company or be shut out of the American market is simply un-American.
Arguing that the law violates the Constitutional rights of TikTok’s American users, lawyers for its parent company, ByteDance, warned that forcing TikTok to sell is the first step to censorship, and if the law isn’t overturned, the company will be forced to shut down in the U.S.
“If Congress can do this, it can circumvent the First Amendment by invoking national security and ordering the publisher of any individual newspaper or website to sell to avoid being shut down,” TikTok’s lawyers wrote in a 70-page brief submitted to the U.S. Court of Appeals in Washington.
That’s a bit rich coming from a platform that’s banned by the censors in its own country. TikTok has never been available in mainland China, which CEO Shou Chew has mentioned in testimony to U.S. lawmakers, the AP reported. Instead, ByteDance offers Chinese users a similar short-video platform called Douyin, which follows Beijing’s strict censorship rules. TikTok also stopped operating in Hong Kong after a sweeping Chinese national security law took effect.
Congress passed its TikTok ban with support from both sides of the aisle, amid growing concern that the Chinese government, which has close ties to ByteDance, could use the app to influence public opinion. And there’s a reason for that concern. A recent poll by the Pew Trust found that a third of Americans aged 18-29 regularly got their news from TikTok. Meanwhile, support for a ban has dropped to less than 50 percent, with only 29 percent of Democrats supporting a ban, according to another poll.
TikTok says spinning off the company’s U.S. operations isn’t viable. The app, they say, is global and interconnected. And even if they could spin it off — and wanted to — they say Congress’ 9-month timeline is too short. They want to continue with a compromise called Project Texas, which located the videos and personal data of U.S. users on a server farm in Texas. But that doesn’t really keep the data secure from Chinese eyes, and it still does nothing to keep the government of China, which the law calls an “adversary state” from influencing what TikTok users see on the app. The real concern of lawmakers and the ban’s proponents is the TikTok algorithm, which determines what users see.
Perhaps surprisingly, TikTok’s lawsuit concedes the Chinese government has the last word in the company’s operations, noting that even if it wanted to divest, the Chinese government has “made clear” that it wouldn’t allow ByteDance to include the algorithm that populates users’ feeds and which has been the “key to the success of TikTok in the United States.”
Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story.
