The new Disney CEO’s covid strategy leans on streaming hits like ‘WandaVision’

Mr. Chapek was the head of Disney’s home-entertainment division, then riding high on consumers’ seemingly limitless appetite for DVDs. After successfully pumping out direct-to-video sequels to beloved classics like “Bambi" and “The Lion King," Mr. Chapek sensed an opportunity with “Air Bud," a 1997 hit film about a basketball-playing dog.

DVDs of the “Air Bud" universe proliferated for 10 sequels and spinoffs released between 1998 and 2013. “Space Buddies," “Seventh Inning Fetch," “Snow Buddies" and other titles earned millions for the company. Though nearly all the “Disney Buddies" films were released straight to home video, Mr. Chapek spent extra on orchestral scores, elaborate marketing campaigns and other embellishments usually reserved for major theatrical releases.

Today, the same instincts are benefiting Mr. Chapek as he shepherds Disney’s transition into the streaming age. Much as he did then, Mr. Chapek today must navigate considerable disruption and bridge the old—a library of classic films, TV shows and franchises—with the new: a streaming service considered by Wall Street to be the lifeblood and future of the world’s largest entertainment company.

“Everything he’s doing are things that we did, only in the home-entertainment area," said Robert Vince, chief executive of Air Bud Entertainment and a producer on all of the “Buddies" films.

Disney declined to make Mr. Chapek available for an interview.

Raising the stakes dramatically: a global pandemic that hit just as Mr. Chapek ascended to the top job, and that has wreaked havoc on Disney’s traditional core businesses, shuttering movie theaters and theme parks.

The spread of Covid-19 has accelerated plans, first outlined in 2017 by then-CEO Robert Iger, to make the Disney+ service a focal point of Disney’s entertainment divisions. Mr. Chapek, in his first year on the job, has restructured the company to give it even more of a starring role.

In the 15 months since Disney+ launched, the company is again leaning on an established library of characters, most successfully in the form of big-budget series like “The Mandalorian," about Star Wars characters, and “WandaVision," featuring Marvel heroes. Sequels, spinoffs and reboots of older Disney material like “High School Musical" and “Toy Story" have helped the service outpace Wall Street projections; it is expected to top 260 million subscribers world-wide by 2024.

Even apart from the pandemic, Mr. Chapek faces a unique set of challenges. As an executive rising the ranks, he earned praise for cost-cutting and a focus on the bottom line, but he now runs a company that also relies on personal relationships and preserving fan loyalty toward the world’s biggest and most beloved entertainment company.

This month marks one year since Mr. Chapek, 60 years old, was handed the top job, ending a yearslong succession drama at Disney. Taking the reins from Mr. Iger, who had been CEO for 15 years, would always mean being the following act to one of the most revered executives in the world. No associate would describe Mr. Chapek, whose career has included stops running Disney’s consumer-products and theme-park divisions, as Mr. Hollywood. But that may suit today’s entertainment industry, which is far more consumed with flowcharts, distribution strategy and couch-potatoing than with power lunches, big-screen premieres and red-carpet glitz. His history in home entertainment seems well-suited to a time when most people are stuck inside.

Almost immediately after receiving the promotion, Mr. Chapek was consumed with weathering the pandemic, which hit Disney’s core legacy businesses swiftly and hard.

In March, about three weeks after he was named CEO, with the coronavirus tearing through the global population, Disney theme parks closed around the world and movie theaters stopped operating. Mr. Chapek took a drastic pay cut that same month—and, in an email addressed “Dear Fellow Employee," told dozens of other high-ranking executives that they would be taking one, too. In April, he furloughed 100,000 of Disney’s more than 200,000 employees.

In August, he pushed the premiere of a $200 million live-action remake of “Mulan" from theaters to Disney+, charging viewers $30 on top of their $6.99 monthly subscription fee. In September, a member of Congress lambasted Disney for filming “Mulan" in the Chinese province of Xinjiang, where human-rights organizations and Western governments have accused China of rounding up members of the Muslim Uighur minority in concentration camps.

In October, he announced an overhaul of the company’s corporate structure that was designed to make streaming the priority but also confused key business partners in Hollywood. In November, he got in a public spat with California Gov. Gavin Newsom about how soon Disneyland could reopen.

Disney’s stock has been on a similarly eventful journey. In mid-March, shares fell to their lowest price since 2014. But Wall Street has since brushed aside a series of miserable earnings reports, including the company’s first quarterly loss in nearly two decades, heartened by the company’s focus on streaming. In December, its stock price reached an all-time high after Mr. Chapek unveiled a trove of upcoming programming and bullish new projections for Disney+. Company shares now hover around $180 apiece, more than double their low point in March.

Focus on the bottom line

Mr. Chapek’s tenure as CEO has so far been somewhat overshadowed by Mr. Iger, with his well-established connections to the creative community and throughout the company he’s helped lead for decades.

“Bob I.," as he is now known internally by employees to distinguish the two executives, remains with the company as executive chairman, overseeing creative matters and popping into meetings to discuss scripts and possible projects, while Mr. Chapek focuses on managing pandemic-ravaged divisions and reorganizing the company to bring it in line with his priorities.

Mr. Chapek is less comfortable in the spotlight than Mr. Iger, but the arrangement leaves little doubt as to who will ultimately be running Disney, avoiding the drama of previous, failed attempts at succession planning. And it fulfills Mr. Iger’s desire to spend a final few years focused on creative matters, without the distraction of day-to-day operations.

Though Mr. Chapek often talks of childhood trips to Walt Disney World, he is not among those workers who describe themselves as having “pixie dust in the veins." At a company where employees regularly quote founder Walt Disney in meetings “like he’s the Dalai Lama," said one former executive, Mr. Chapek is less beholden to the past.

“He’s not drinking from the myth of Walt," this former executive said.

When Mr. Iger was named CEO in 2005, he, too, confronted industry skepticism about his creative chops. Today he is well known for weighing in on script rewrites, watching TV pilots and dictating details for theme-park attractions. Ahead of the 2019 opening of a Star Wars-themed area at Disney’s U.S. theme parks, for instance, Mr. Iger scrapped more than a year’s design work and ordered the company’s “Imagineers" to set the attraction on a different planet, according to a person familiar with the situation.

Mr. Chapek doesn’t speak that language as easily, colleagues say, and is more likely to ask about budget items on an attraction than the thematic motivation behind it. When it came to movies during his days in the direct-to-DVD boom, he focused on how a given title could be marketed before he’d hear its story. He grew excited about “Space Buddies," for instance, when Mr. Vince showed him a mock-up poster of puppies dressed as astronauts. Another associate said Mr. Chapek did have creative input for the franchise. It was his idea, this person said, to have the dogs talk.

When it came to maintaining good relationships with directors and other creative partners, he was happy to have subordinates do it, former colleagues say. To Mr. Chapek, concerns like talent relations and the company’s public image were secondary to making money for shareholders.

Mr. Chapek’s focus on the bottom line could antagonize directors and producers who sometimes chafed at budgetary constraints, former colleagues say. When a movie was approved as a direct-to-DVD release, Disney had to keep a lid on costs for it to remain profitable—a tricky balancing act that required making cheaper movies that didn’t tarnish the overall brand. But Mr. Chapek thought the company could thread the needle and make films that were good enough to protect the Disney brand while also making money.

This DVD will self-destruct

The young Bob Chapek didn’t grow up with his eye on show business. A self-described “latchkey kid" from Hammond, Ind., a small city near the Michigan border, he studied microbiology at Indiana University before receiving an MBA from Michigan State. His mother worked in an insurance firm and his father was a machinist.

“Coming from Hammond, the first thing you consider when thinking about a career is not necessarily working for Disney in Hollywood," he told his hometown newspaper, the Northwest Indiana Times, in 2006.

Mr. Chapek joined Disney after stints at companies like H.J. Heinz. When he joined Disney’s home-entertainment division in 1993, he was merely staying in the packaged-goods business, he has said.

At Disney, Mr. Chapek oversaw a booming home-video business buoyed by the “Disney vault" strategy, which released beloved titles for limited periods before removing them from stores. The intentional scarcity resulted in an unintentional side effect: a black market for hard-to-find VHS copies of movies like “The Little Mermaid," which could fetch as much as $300 each. When a new movie was released from the vault, consumers would rush to buy it—often because Mr. Chapek’s team had added special features like interviews with cast members that made the newest version seem like a necessity to hard-core fans.

With DVDs, Mr. Chapek had the chance to look at the Disney library and find well-known characters, like Tinker Bell or Bambi, and recycle them in new stories that turned easy profits.

Mr. Chapek also released original titles that skipped the theater, another way to capitalize on the home-video craze. The challenge became convincing consumers that these at-home options were viable alternatives to the theatrical experience.

“The retail outlet is the first venue for consumers to view these movies," he said in a 1998 interview. “The premiere is actually taking place in the store."

Mr. Chapek embraced technological solutions to vexing problems, not always successfully. In 2003, he oversaw the development of a DVD that self-destructed after 48 hours, an alternative to rentals that he believed would appeal to consumers who wanted to avoid repeat trips to the video store and late fees. The technology, marketed as eZ-D, did not prove economically viable, and environmentalists protested outside a 7-Eleven in Texas that sold the disposable discs for $7 apiece.

In a preview of today’s battles over streaming, Mr. Chapek didn’t seem to mind that promoting at-home movies as viable alternatives to the cinema angered theater owners, especially when the DVD became the single-fastest entertainment technology adopted by the market. Starting with the 2010 live-action remake of “Alice in Wonderland," Mr. Chapek pushed DVDs’ release dates closer to the movie’s theatrical debut, further alienating theater operators.

When the industry years later was divided over whether to support HD-DVD or Blu-ray as the next generation of home entertainment, Mr. Chapek loudly backed Blu-ray, since he thought it would offer Disney the better chance to pitch consumers on yet another format and sell copies of movies many already owned on VHS or DVD. He even sent a “Magical Blu-ray Tour" to seven cities across the U.S. in 2008 to educate consumers on the technology.

Even before Hollywood embraced the notion of “direct-to-consumer" businesses—streaming services like Disney+ and HBO Max that allow studios to circumvent theater owners and other middlemen—Mr. Chapek had little patience for legacy deals that kept Disney from dealing directly with consumers. Mr. Chapek led discussions about a Disney subscription service as early as 2007, former colleagues say, but existing deals with TV networks meant rights weren’t available for crucial movies that such a service would have needed to launch.

In 2011, Mr. Iger pulled Mr. Chapek out of his movie-distribution job and put him in charge of Disney Consumer Products, which sells toys, clothes and books. It was part of Mr. Iger’s succession-planning strategy, which involved placing CEO candidates atop parts of the company where they had little expertise as a way of seeing how they might adapt to the biggest job of all.

In the new role, Mr. Chapek won favor with his bosses by reorganizing the division around brands like Mickey Mouse, the Disney princesses and Star Wars, rather than around categories like housewares or action figures. The old arrangement led separate product divisions to chase each new movie or TV show in an attempt to hit their numbers in a given category. Mr. Chapek’s new setup gave subordinates an incentive to keep an eye on each franchise’s overall health.

The overhaul disrupted years of business for Disney’s consumer products team—internal critics said it felt like Mr. Chapek couldn’t resist reorganizing any division he ran—and led to layoffs and turf wars. But it was a hit with Mr. Chapek’s boss, Mr. Iger, who was busy organizing the company around the brands—Disney Animation, Pixar Animation, Marvel Studios and Lucasfilm—that had defined his tenure as CEO.

After taking over Disney’s theme-park division in 2015, Mr. Chapek raised prices—and started charging even more on holidays and other popular times that strained capacity at the parks. The division’s profits grew at a rapid clip, even if die-hard Disney fans complained about the higher ticket prices.

“He’s done well because he’s able to make those unemotional decisions," said one colleague who worked in consumer products at the time.

Full stream ahead

The reorganization of consumer products now seems like a prelude to the biggest stamp Mr. Chapek has put on Disney since taking over as CEO: an across-the-board separation between those who make Disney’s movies and TV shows and those who decide whether they will premiere in theaters, on a TV network or on Disney+.

As with his reorganization of consumer products, Mr. Chapek wants those who produce entertainment not to worry about how it is distributed. But that undoes years of business in Hollywood, where the same executives have typically overseen both storytelling and the allocation of production and marketing budgets. Similar restructurings at AT&T Inc.’s Warner Bros. and other studios have forced a recalibration of Hollywood power centers, with agents, actors and directors not knowing who will ultimately decide how their movie or TV show is viewed—or their salaries calculated.

Mr. Iger has told associates he disagrees with some of Mr. Chapek’s organizational choices, according to a person familiar with the matter. Insiders say the studio overhaul has also inflamed some of the worst aspects of Disney’s political corporate culture, with fiefs like Marvel or Lucasfilm now having to lobby colleagues in other divisions for greater control of how their products are distributed.

For Wall Street, the focus is on attracting and retaining Disney+ subscribers. One former executive with the streaming service said the next wave of growth will likely need to come largely from overseas audiences, since the service gained U.S. subscribers more quickly in its first few months than initial projections had anticipated. Disney+ had 95 million subscribers as of early January. Moving “Mulan" and other would-be theatrical releases like “Hamilton" to the service have provided subscription boosts, this person added.

Mr. Chapek and his team have announced dozens of new shows and movies designed to attract and retain subscribers. In many ways, it is a programming slate that looks a lot like his direct-to-DVD days—even once again turning to Tinker Bell for a new take on “Peter Pan."

For Mr. Vince, the “Air Bud" producer, the strategy comes as little surprise. The two men caught up shortly before Mr. Chapek was named CEO. Mr. Chapek wasn’t involved in Disney+ at the time, but he had a read on where the company was going, he told Mr. Vince.

“They’re in the home-entertainment business and they don’t know it yet," Mr. Chapek said.

This story has been published from a wire agency feed without modifications to the text.