“C, The Economy Sucks” — Not Always The Right Answer
I know it’s almost irresistible to write another story about how "the economy is tanking and we’re all doomed, here’s another example," but it’s not always the whole story:
Disney’s sports network ESPN said this week that it would shed about 200 jobs this year. The Bristol, Conn.-unit also is freezing the salaries of senior executives.
The layoffs come just two weeks after Disney disclosed that it awarded Chief Executive Robert Iger $30.6 million in compensation in 2008, an increase of 11% from 2007. The boost came despite a 5.5% drop in net income during the entertainment giant’s last fiscal year as consumers reined in spending, reducing profit at its theme parks as well as its television stations and networks that rely on advertising. Disney’s revenue climbed 7% to $37.8 billion.
Most Disney divisions are cutting back as the economy worsens. Last week, the company offered voluntary buyout packages to about 600 executives at its domestic theme park and resort divisions. Those executives have until Feb. 6 to decide whether to leave with severance or risk becoming part of a round of layoffs.
The number of employees let go at the Disney-ABC Television Group represent less than 3% of its nearly 7,000 workers, or 5% including the vacant positions. Last November, ABC asked its show producers to trim their budgets by 2% in a bid to reduce production costs.
The entertainment industry isn’t recession-proof, but historically it’s about 2 years behind the rest of the economy because entertainment is one of the last things people will give up.
However, entertainment companies make a lot of deals that don’t pan out and they use times of economic downturn to unload them. It’s a highly speculative business that doesn’t easily reduce itself to exact science, so studios are always making deals for "the next big thing" and they then use these times to get rid of the ones that don’t work. The business is also changing and this is their chance to pare back less profitable divisions — and never underestimate their willingness to scare employees into tightening their belts.
I’m sure they’re worried about the economy too but if 2008 revenues are up over 2007 and Iger’s worth 11% more to the company, the sky’s probably not falling and the entertainment business is also just doing what it’s done since Cecil B. DeMille rode over the Cahuenga Pass on a mule.