Q3 2020 Walt Disney Co Earnings Call
I've two questions. The first one is on the street in the second on the part on the studio.
Do you think moving sort of big tent pole films, you know direct to consumer is going to be more of a common occurrence for Disney or Milan kind of a one off I mean, how should we think about black widow I guess later on the fall and then on the parks I guess any color on how much the accretive opening a Walt Disney World is eating away at the losses in the parks.
I think you said Christine that its eating away or less accretive maybe then he thought it would be initially because the surge of Corona I'm curious is that because demand isn't as strong as you thought it would be or because you're just having it could keep capacity lower and more careful because of the surge. Thank you.
Okay, Alexia sales Bob why don't we are still the first question. One age studio question, then we'll get spokesman.
Okay, we're very pleased to be able to bring lawn to our.
Them or base has been waiting for for a long long time as we've had to unfortunately move our theatrical dates several times.
We're fortunate that we have the opportunity to bring into our own direct to consumer platform. So customers can enjoy but we're looking at Milan as a one off.
In terms of.
As opposed to say trying to say that there were some new.
Business when do we model that we're looking at.
So no one is a one off that said, we find it very interesting to be able to take a new offerings.
Our premier access offering to consumers at that 29, 99 price and learn from it and see what happens not only in terms of the uptake of a number of subscribers that we get on the platform, but the actual number of transactions.
The Disney plus platform that we get on ESP viavi offering.
And then on the part question, Bob maybe want to speak to demand demand Christine you could jump in on some of the numbers.
Yes. This is obviously.
Highly uncertain times, and we can tell from our reservation stream that we had.
Ample demand to go above what the six for social just two things.
Guidelines would give us.
That was six weeks before we open the park when we announced we were opening the park and then Unfortunately cobot struck again and all the numbers started going up this gave some level of trepidation to travelers who are anxious about long distance travel jumping on a plane flying to Walt Disney World. So what we've seen as that we have roughly 50.
Percent of our guest base still traveling from a distance.
But the other 50% coming from local markets in state.
We've also had a higher than expected levels cancellations once somebody does make a reservation because as the disease as in flows they might necessarily cancel so what we've done is used our strategy for yielding and made sure that everyday we're pretty close to the percentage of the park that we can.
Phil and still maintain the social distancing, we just replace local and annual pass holders with some of the follow up there we have necessarily seen from the long distance travelers I will say that our research indicates that in our bookings indicate that.
We should be in good shape on ones.
Consumer companies sort of returns and the so we're very optimistic about that but we're very happy that we're returning a positive net contribution as Christine said because that was our goal. The first place while at the same thing operating very responsibly.
Hi, Lexia upward a little context into what we're referring to as a net positive contribution.
On our last earnings call, Bob mentioned that we would not be opening a park unless we believe that we could shortly after opening.
Generate revenue that exceeded the variable costs. So we are able to do that although it is it to a lesser extent.
Because of the.
The current Covance situation in Florida.
As we said as that.
Dates we expect the demand to pick up but right now it's not as high as we had expected, but we're still in the net positive contribution level and I'd also like to mention Shanghai has consistently been operating in that net positive contribution.
Area as well.
Thank you very much.
Okay Alexia thanks for the questions. Operator next question. Please.
Thank you. Our next question comes from Ben Swinburne with Morgan Stanley. Your line is now open.
Thanks, Good afternoon.
I wanted to ask about the international General Entertainment DTC launch.
Which I think is not a huge surprise here moving forward, although calendar 21, I'd, even earlier than we were expecting.
But doing it under the Star brand is an interesting twist.
Versus say Kulu I'm wondering if you just give us a sense for.
Strategy, there and what you're looking at in terms of case of deployment and you can tell us I'm sure. There's a lot coming on the Investor day about that strategy, because obviously thats a big news.
And then just following along on direct to consumer.
Don't forget about Milan first second the Premier access as a as an offering is an interesting strategy I'm. Just wondering what your research tells you about that approach versus you know offering more content as part of the Disney plus subscription we haven't seen sort of this idea of.
Subscription service with what's kind of a pay per view element on top of it which is really interesting I'm wondering if you're thinking about using that on a regular basis globally on the does it plus platform.
Thank you.
So the question, Ben and I will turn those over to Bob Okay in terms of.
The general entertainment offering internationally, we want to mirror, our successful Disney plus strategy.
Using our Disney plus technical platform routing it in content that we already own and distributing it under a successful international brand that we also already on which is of course star and then bringing it to market in a very close association to Disney I think in terms of.
Being surprised that this isn't being launched.
Under a different brand names I think it's important to look at the differences in how we plan on going into the market. In the first thing is is that who aggregates third party content, where this will not this will be rooted in our own content from maybe the studios Fox TV FX Freeform Searchlinks Twentyth century.
And who will also I must say has no brand awareness outside of the us and nor does who have any content has been licensed to it internationally. So this gives us the ability to market. This under the Disney umbrella and have synergies with our existing platform. So thats our basic rationale then.
In terms of.
The premier accessed idea.
As you probably know Disney tent pole blockbuster theatrical films can be fairly expensive to make and produce in order to get the quality that consumers expect from less than frankly to get the quality that we expect from us and rather than simply rolling it into a free offer.
I mean, we thought we would give again because we can test almost anything when you have your own platform. We thought we were given to try to establish a new windows premier assets when to try to recapture some of that investment that we Scott and the good news as I mentioned my opening comments is that we're going to have a chance to learn from this and to see.
Whether that makes sense all say about our research is that it shows that such an offering under a premier access offering not only gives us revenue from the original transaction from the PV Odie, but also acts as a fairly large stimulus to sign up for Disney plus.
Thats very helpful. Thank you.
Okay. Thanks for the questions. Operator next question. Please.
Our next question comes from Jessica Rice Airlift with Bank of America. Your line is now open. So thank you a couple of questions first would you provide updates on some of your past guidance, specifically on Disney plus you've exceeded your low end of your five year outlook, but you haven't said anything about.
Reaching breakeven sooner or not.
Within the Disney plus if you could give us some color on Japan, which has always been a very enthusiastic Disney branded market.
But the other update was on Fox the Fox synergy the $2 billion that do you have given us in the past and then just moving on to kind of current stuff on.
Production I mean, obviously.
But the new protocols costs will go up if you can you give us any color on.
What percent or how you think about that and who will be bearing the cost of that will you will do you expect to get.
National insurance plan in place I mean, there's just there's so much complication there and then I was just hoping you could say talk about maybe the original ramp how will you prioritize getting back tomorrow.
On production our adjusted out we'll we'll see her from your we'll try to go to as many of your questions as we can say pristine let's start with.
Just because question about.
Does it cost guidance, and Japan and synergies, let's start with that group.
Okay, Hi, Jessica.
We'll see if I can remember all these and sequential order.
So on updating guidance.
We're in the process now of working through.
Our long term plan.
Just because of co bid and all the.
The disruption to our businesses, it's a little bit delayed from typical.
Calendar schedule.
We are not going to update.
Piecemeal, we're going to give you a full update of the guidance we provided.
At the original Investor day, when we do the upcoming Investor day in.
In a few months. So you can expect to hear a fulsome review of the guidance and what we're looking for now because obviously things have gone better than expected and.
We are growing into momentum here.
On Japan.
Disney plus launched on June 11th in Japan, and it wasn't a full I would call with a limited launch it was an exclusive alliance with NTT Docomo. So that was not provide you had to be an NTT docomo.
Subscriber in order to have that ability. So you shouldn't be looking that at a full country launch. So I think you can anticipate that once it is launched there will be more demand for Disney plus in that market because you're absolutely right. There's a very very high affinity for the Disney brand in Japan.
I think you also had a question on Fox synergies.
We are still on track to achieve the synergies that we had discussed originally.
And that is going along even despite covert where we're still proceeding.
And then just got a question about restarting production as well Christine you want to take that one.
Sure.
My prepared comments I said that we would incur around over a billion dollars of costs.
Between now and the end of fiscal 21, and that's a variety of things it's everything from ramping up productions and you can imagine these production they have everything from distancing that you have to accommodate for site preparation stage preparation.
All the testing that has to go on so there's a lot of increased cost and what those also will result in his increase days to produce episodes. So.
So all of those things will incur costs as I mentioned, we will be capitalizing many of those costs that are related to productions and those will be amortized.
In future periods and also in parks as you've heard from US. There is considerable cost that have been put in place to achieve safety and health measures.
And those largely are expensed in the parks.
Okay. Jessica Thank you for the questions. Operator next question. Please.
Thank you. Our next question comes from John Hodulik would you be US your line is now.
Okay. Thanks, just maybe two quick ones first Bob you talked a bit about some of the new program, you're going to have on the Disney plus platform.
In the fall or are you confident that that you've got a strong enough lineup that you can sustain the growth that you've recently seen.
Both in the U.S. and some of these international markets given that given where the production halt the need to restart that and then secondly, although it's not as good as immediate of a concern, but you guys suspended the dividend I think that was on last call.
Any thoughts to sort of.
Reinstating that in sort of just.
Capital allocation as as we as we look forward and especially with the do sort of more aggressive stance on DTC. Thanks.
Hey, John Thanks for the questions Bob Why don't you take the production question for the fall and Christine you'll take the dividend question.
As you may suspect.
While we've had to slow down production and.
Altogether in some cases during the call. This time we've done.
And busy developing new content and we're extremely excited about some of those things that we've got not only to sustain that linear growth that you've talked about versus the plus that actually go beyond that and growth. We've got of course, the mandatory into which we've announced is coming in October but we've also got a slew of Marvel content, that's going to becoming that were very.
Cited about and these require us to re enter into production, but it's such a priority that we're hopeful that this will be coming shortly to enable us to again not only sustain but continue to grow and I would tell you that the content is fabulous.
Lucky.
Falcon and winter soldier and one division three.
Marvel properties that were really really excited about and one other things about Disney plus that we found is that new caught tends to bring new content tends to bring in new subscribers by catalog increases engagement and helps us retained subscribers. So I think that this new content, having so much of this.
All at once.
That I think it's really going to go ahead and propels business forward pristine.
Hi, John So let me just make a couple of comments on the dividend.
As you know management recommended and the board decided to accept that recommendation not to pay dividend for the first half of.
Fiscal 20.
Now with the payment that would have been made in July and we all believe that that decision provided the company with additional financial flexibility given what we were seeing in the.
In the coven environment, we're in and all the uncertainty that we're dealing with and continue to deal with so our board would typically determine whether or not to declare a dividend for the second half of fiscal 20.
In the latter part of the calendar year would be very late November early December and making the recommendation to the board. We again, we're going to take into consideration, where we are with co Ed and the impact that it's having not only on our financial performance, but what measures were taking to mitigate cobot impact. So we'll take the.
No.
Financial picture into consideration.
It is part of our overall capital allocation.
Principles, but first and foremost we're going to invest in businesses that we believe we're going to drive long term shareholder value and you're seeing what we're doing in the direct to consumer initiatives not only domestically with Disney plus internationally with Disney plus now internationally with the General Entertainment channel.
So we feel like that that's certainly top of the list, but we're also looking at.
Other measures like a dividend, but we won't make that decision or recommendation until to the board until the end of the close to the end of account here.
Great. Thank you both.
Thank you John Operator next question please.
Thank you. Our next question comes from Michael Nathanson with Moffat Nathanson. Your line is now open. Thanks.
To follow what is on the rollout of a new channel.
Stark you talk a bit about how you think about either the Vod asphalt hybrid that's worked in the US is that the tempting to think about globally and then there's just too concerned about college football and pro football not being in a bubble and I'm wondering is generally what what risk is there to up to affiliate fees if those seasons.
Don't get completed so anything and help us on.
On the as Ken and maybe those sports that are not or bubble and risk to your affiliate fees longer in the next six months or so.
Okay. Thanks for the questions Michael Bob do you want to take both of those.
Yes in terms of the star offering that we announced today. We see this is part of a sort of a sequential.
Domino strategy in terms of getting towards and offering on Disney plus starting with the PV odie going through some transactional window. After we have an exclusive on Disney plus for the PV or the details to be announced later and then eventually going to.
Did the plus world we live in perpetuity now I should also say that.
We we think that.
The star brand itself in terms of its offerings. We've got a utility here. We've got to utilities that is enabled on all busy platforms I did mention to you.
As.
We will have the ability to use the same platforms across both business plus and star. So that if theoretically we can afford to do something on one particular platform like disease, plus we should be able to do it on the start but not something we've talked about are entertained but the capability is there in terms of the Fox are.
In terms of the college football and the likelihood that it plays I don't really want to comment on the possibility.
Of us going on.
There is a seasoned going on because I think thats really have to lead commissioners.
That being said.
We feel that.
We've got certain covenants that we operate in terms of like fermenting hours with our partners and we feel confident that with the way that we see all the sports going on right now we feel confident that we're going to be able to reach that right.
Bob.
As part of strategy as you did with whoever with us.
Yes, well, we have no planned Avon Escalade onstar itself.
We've got obviously similar capabilities as we've got the Disney plus if we ever so chose to do that but we've got no plans to do that no alright. Thanks.
Hey, Michael Thank you operator next question please.
Thank you. Our next question comes from Jason Bazinet with Citi. Your line is now.
I Love that you guys are always.
Conservative with the capital and recognize you said it was a low cost of debt in terms the latest capital raise but the $23 billion a cash that sits on the balance sheet. It seems excessive even under the most.
Tire scenarios in terms of free cash burn you could anticipate so.
Can you, maybe just explain a little bit behind.
You are thinking behind that quantum of capital and what it might be useful. Thanks.
Okay, Jason Thanks for the question Christine you want to pick up.
Sure. Thanks, Jason.
You're right, we do take somewhat of a conservative conservative approach to managing liquidity.
And when we raised that money it was back in March and April.
We were able to achieve some pretty favorable.
Interest rates, but we also did not have any visibility into how long. This environment was going to continue we also saw some weeks in the spring when.
There were consistent.
Capital markets conditions, so you'd have some weeks when spreads gapped out sometimes they tighten up and we took the position that get it when we can and because the demand was so high we decided to take it because we view it somewhat as an insurance policy.
But when when we look at that the overall balance sheet.
We havent and we see cobot continuing for a while the one of the there's a few things that have.
That have happened in our businesses and one is just the way that we have probably.
Been much better at cost mitigation than we anticipated the whole company is aligned towards.
Tightening.
The belt and we've done I think a great job on that.
But as we are opening up the parks remember now we furloughed over 100000 people.
And we're bringing them back for the most part not all of back yet, but a lot or back so we.
We will be spending more money just in terms of labor than we did in the third quarter. So in the fourth quarter, you'll see some of our costs actually go up to resume some of our businesses. So I look at this ads as.
As we all know what kills the company is the lack of liquidity and as a CFO I would never want to be in that position of not being able to fund all of our obligations.
That makes perfect sense, but none of that capital was really earmarked to sort of pulling the minority stakes tools that you don't own that was not part of the thinking.
No. That's if you look at that that's out a couple of more years, so and the other thing is we do have debt maturities coming up we still have another 1.1 billion. This fiscal year. If my memory is correct I think three and a half billion for fiscal <unk> 21. So we've got some debt maturities that we don't have to go to Mark.
This cash is still on our balance sheet, we can just certainly repay that and not not refinance thank you.
Jason. Thank you operator next question please.
Thank you. Our next question comes from Kannan Venkateshwar with Barclays. Your line is now.
Thank you.
So a couple if I could say first is crossing the 5 billion dollar charge that your Coke for international markets. I guess this is a question for Bob as well, but.
Gordon does this mean that.
You could potentially use this as a way to pull more channels. Then go direct to consumer than other markets I think you're kind of little bit of that in the UK.
Some channels, but.
Good that become a bigger possibility in other markets now that you've written down this asset.
And then secondly bought from your perspective, when you look at ESPN.
Obviously cord cutting is accelerating just given where the cable companies et cetera, so far.
Is that an alternative state of the world with SPM could go direct to consumers and have you looked at that model in terms.
You can perspective, thank you.
Okay. Thanks for the questions Im Christine why you speak to the 5 billion charge and Bob you speak to SPM. Thanks.
I can on.
So that's a great question and I'm glad you assets I can put some color around this impairment.
So the best way I would frame. It is this impairment reflects.
Underperformance of the international channels business.
We were already seeing and then that was exacerbated by the impact of Cobot 19.
Coupled with that we we've learned a lot with the launch of Disney plus and we have as you've heard today accelerated our push into consideration Tc consumer streaming and with the same time, you're seeing a decline in the subscriber on MVP de subscriber base.
Side of the U.S.. So you add all those things up.
And we're not this this impairment does not include the value of DTC. That's intact. What this impairment is about is the linear channels and so we have in this calendar. This fiscal year have already closed down more than 20 channels. Most of those were closed in.
Third quarter.
And they were primarily in Asia Pac and in EMEA, no when I say APAC not in India. These are in other parts of Asia.
But thats, where it was that's where the the channels were closed and we're taking a look at going more quickly as you said into direct to consumer in this these these channels shutting them down and taking those platforms direct.
Certainly what is behind this impairment.
And in terms of the Dsps question, Let me first start off by saying that on a macro level I think we understand the value of why sports.
ESPN is the strongest brand in sports and sports continue to be a driver of viewing interest I think as evidenced by the fact that sports accounted for over 90 of the 100, most viewed telecast on broadcast and cable in 2019. So we've got a really strong position from a brand standpoint in a mark.
Good that consumers love. So then the question is how do we get it to the consumer and certainly you asked us whether we've looked at a stronger.
Correct, the consumer proposition for Sps, absolutely, we've looked at everything and when we think that we've got the most effective way to maximize shareholder value from the brands. The way we are right now, but as that changes over time, we're certainly open to any and all options in terms of how we maybe able to get our program.
I will to our consumers and hopefully we can talk a little bit more about this in our Investor conference when we need in the next few months.
Okay.
Thank you.
Thanks for the questions operator, I think they have time for one more question today.
Thank you our last question comes from Steven tail with Wells Fargo. Your line is now open.
Thanks.
First just wanted to clarify on parks.
The lower contribution margin in Orlando could you just help us think through some of that disruption that you had with that more about not being able to get as many people in the parks or was that more of a per capita spend or pricing issue. The caused the contribution margin to come in lower and maybe you could update a little bit on what youre seeing in terms of pricing and.
Occupancy at hotels, as well and then on Disney plus I'm curious I mean, you've had this amazing ramp up to the low end of guidance as you think about the next stage of growth for Disney plus does that make more sense to kind of go after a bigger market of subscribers, which can be pretty expensive in terms of original content are you more kind of focused on.
And get into like more of a plateau with is the plus than driving it more towards profitability with the content that you've already got planned in the pipeline that is more around the film slate in the existing characters. Thanks.
Our Steve maybe Christine you want to just really start on the parks metrics and then Bob you may want to comment on parks, and then talk about Disney plus as well.
Hi, Steve So when we were talking about the net positive contribution opening up Walt Disney World.
What we were referring to was that.
Because the there was a surge of co bid in Florida.
Rich.
Limited the amount of inbound travel that we had originally anticipated so it's more local.
That overall is having a little bit of a dampening effect on it but but still positive.
And once again it will pick up when there's.
When there is more.
Regular travel patterns going into Walt Disneyworld and as it relates to sort of pricing in occupancy of the hotel. It's really like there's so many hotels that are not yet reopened.
And so those are kind of meaningless numbers right now so once.
I would say the travel patterns get a little more normalized and we see people going in and staying.
For regular vacations like they used to.
We'll be providing occupancy and booking numbers, but right now the one thing I would add is per caps are very very strong.
And you can say that thats, probably because people haven't done in the parks for a while there is pent up demand and let's not forget that we just opened.
The full the rise of the resistance.
As well as as the Star Wars Lance fully.
In the beginning of this calendar year. So you had a lot of people even flow Floridians, who are just traveling locally who have not yet had an opportunity to go in and experience that so the per caps are great.
And I think it's because people haven't been able to get into our parts for quite a long time.
I'll follow up on the parks question is that as you know different guests, depending on where they're coming from have different relative values in terms of their contribution as a guest to the park in the.
Typically some of you travels and stays for five to seven days.
Is marginally more valuable to the business and some of that comes in on an annual pass and stages, a day or two and consumes less.
Merchandise includes average so the way I would look at it is at its just as their constituents constituency changes a little bit so do our overall.
Margins change, but it's not because of price reductions or anything like that and I think Christine handled the pricing in occupancy in hotels on the Disney plus we absolutely are going after a big market a bigger market of a number of subscribers as opposed to over rotating to try to get to way profitability number.
How much sooner than we saw although I must say the prospect of us hitting our goals as quickly as we are is very encouraging but what we plan to do is invest even more in our content in order to keep that machine cranked and going as I mentioned one of the biggest things in terms of subscriber acquisition is having new hot.
Temple content to bring to the service and you get that by making investments in new content. So.
We'll be investing in context first and then.
Trying to grow the service both from a marketing standpoint and from well.
Installed base standpoint.
Really great color.
Thanks for the questions and thanks again, everyone for joining US today note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website.
Let me also remind you that certain statements on this call, including financial estimates or statements about our plans expectations beliefs or business prospects may constitute forward looking statements under the securities laws.
We make these statements on the basis of our views and assumptions regarding future events and business performance at the time, we make them and we do not undertake any obligation to update these statements.
Forward looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on form 10-K, our quarterly reports on form 10-Q and in our other filings with the Securities and Exchange Commission. This concludes todays call.
Hi, Thanks, again, everyone for joining us and have a great rest of the day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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