Q4 2020 Walt Disney Co Earnings Call
Lee we are extremely disappointed that the state of California continues to keep Disneyland close despite our proven track record our.
Our health and safety protocols are all signed space and have the support of labor unions, representing 99% of our hourly cast members frankly.
We and other civic leaders as stated before we believe state leadership should look objectively and what we've achieved successfully at our parks around the world All based on science as opposed to setting an arbitrary standards that is precluding our cast members from getting back to work, while decimating small businesses in the local community.
As our ability to operate responsibly in this pandemic environments extends beyond our theme parks I'm proud to say that we were successfully able to host the NVCA and MLS at Walt Disney World in Orlando.
It's been a huge undertaking and a great achievement.
Just consider the NDA for example.
94 days.
22 teams 172 games players broadcast partners referees media support staff and Disney employees all in the bubble.
It was also a big win for ESPN, which broadcast the gains along with a pack schedule of.
Other sports offerings, including the WMS.
College Football Major League baseball and the NFL as you look at the most watched cable shows on TV. This year more than half have been live sports proving that sports are a powerful drop despite the disruption of the pandemic.
Ian.
In digital and SPM plus have also performed exceptionally well with September being the best month ever for SP and streaming video.
Yes PM plus continues its positive subscriber growth, reaching more than 10 million paid subscribers as of the end of the quarter nearly tripling in size.
For the past year.
As you can see even during these most uncertain times here's the Walt Disney Company, we are finding ways to not only operate our businesses effectively but also take the necessary bold steps for our future growth.
And we are more committed than ever to investing in our businesses.
In particular, our DTC strategy, which we see as the key driver of significant long term value for our company.
We look forward to sharing details of our plans with you at our Investor Day next month, we also can't wait for you to see the extraordinary content, that's being created for our full portfolio of streams.
New services Disney plus.
SPM, plus who and star, it's just fantastic and with that I'll turn it over to Christine.
Thanks, Bob and good afternoon, everyone.
Excluding certain items affecting comparability the fiscal fourth quarter's diluted earnings per share was a loss.
Of 20 cents and our full year fiscal 2020 diluted EPS was $2.02.
Our financial results continued to reflect significant impacts from COVID-19, which we estimate adversely impacted segment operating income in Q4 by $3.1 billion.
Our parks experiences and product segment was again, the most severely affected with an estimated adverse impact of $2.4 billion in the fourth quarter.
We estimate that media networks operating income was negatively impacted by approximately $500 million due to covance.
Largely due to higher rights costs at ESPN associated with programming in the fourth quarter that was delayed from prior quarters.
Another factor that affected our Q4 results was the 50 Threerd week, while last quarter, we guided to the 50 Threerd week, having a modest adverse impact.
Operating results the additional week of operations actually resulted in a benefit.
There were a few reasons behind this variance, but the largest driver was related to the timing of sports rights costs.
I'll now turn to our results by segment.
At parks experiences and products financial.
Actual results in the quarter were significantly impacted by restricted capacity enclosures offer.
Operating income at parks experiences and products declined significantly versus the prior year.
To an operating loss of $1.1 billion.
This reflects the closures of Disneyland resort in California.
And our cruise line business for the entirety of the quarter.
Shanghai Disney Resort was opened for the full quarter after reopening in May while Walt Disney World Resort and Disneyland Paris reopened in mid July Hong.
Hong Kong Disneyland resort was opened for a couple of weeks at the beginning and end of the.
The quarter.
All of our reopened parks and resorts were operating at significantly reduced capacities during Q4.
However, we are pleased to report that Walt Disney World, Shanghai, Disney Resort, and Hong Kong Disneyland all achieved a net positive contribution in the quarter.
Which means we generated revenue that exceeded the variable costs associated with Preopening.
At Walt Disney World. We are also encouraged by the booking trends we are seeing Pos.
Park reservations at our reduced capacity limits are already 77% booked for Q1.
With Thanksgiving week booked close to capacity.
These trends provide us with further confidence around underlying consumer demand for our parks and experiences.
At studio Entertainment operating income decreased in the quarter due to lower theatrical distribution and home entered.
Payment results.
Worldwide theatrical results continued to be adversely impacted by COVID-19 as theaters were closed in many key markets, both domestically and internationally.
With no significant worldwide theatrical releases in the quarter, we faced a difficult compares.
Prison against the strong performance.
The Lion King and toy story four in the prior year quarter.
The decrease was partially offset by lower marketing expenses.
Lower home Entertainment results were driven by lower unit sales also partially offset by lower.
Operating expenses.
Unit sales were lower in the quarter as there were no comparable releases versus the prior year performance of a ventures end game, Aladdin and captain Marvel.
Turning to media networks operating income was up in the fourth quarter due to higher.
Our model set broadcasting, partially offset by lower results at cable networks.
At broadcasting the increase in operating income was primarily due to affiliate revenue growth and lower programming production and marketing costs.
The decrease in programming and production costs was large.
Partially driven by COVID-19 related production shutdowns and cancellations of network programming.
The shift of college football games to fiscal 2021, and a delay in aerie new season premieres.
Lower results at cable networks were driven by decreases.
With ESPN, partially offset by increases at FX networks, and the domestic Disney channels.
ESPN results were lower as affiliate and advertising revenue growth were more than offset by higher programming and production costs.
At ESPN and higher program.
Grooming and production costs were largely due to coated related shifts of rights costs for the NBC in major league baseball into the fourth quarter.
This included two NB eight finals games, and 16 MLB post season games that fell into the 50 Threerd week.
Total ESPN advertising revenue was up 26% in the fourth quarter, including the benefit of the 50 Threerd week.
The return of live sports events drove higher rates slightly offset by viewership declines so far this quarter ESPN domestic linear cash add sale.
Our pacing below the prior year, primarily due to shifts in college football schedule, particularly for the big Ken and the Pac 12.
Given the timing of programming remaining in the quarter. We currently expect that ESPN advertising revenue will end the first quarter.
Higher versus the prior year.
Total media Networks' affiliate revenue increased 12% in the quarter. This.
This was driven by a benefit of eight points from the 50, Threerd week and eight points of growth from higher rates offset by a four point decline due to a decrease in subscribers.
The decrease in subscribers benefited by about two points from the launch of the HCC network.
At direct to consumer and international an operating loss of $580 million in the quarter was an improvement of approximately $170 million compared to the prior.
Our year.
This improvement was driven by higher results at Hulu, and SPM, plus partially offset by cost associated with the ongoing rollout of Disney plus and a decrease at our international channels.
At Hulu the improvement was primarily due to.
Both subscriber and advertising revenue growth, partially offset by higher programming and production costs.
The improvement at SPM, plus was due to subscriber growth as well as increased pay per view income from new FC events.
Kulu ended the fourth quarter with Thirtys.
36.6 million paid subscribers and ESPN plus ended the quarter with 10.3 million paid subscribers.
Disney plus ended Q4, with 73.7 million paid subscribers or an increase of over 16 million subscribers versus.
Three.
Disney plus Hotstar subscriber additions were the largest contributor to this increase driven by the start of the delayed IPO season.
Disney plus Hotstar subscribers now account for a little over a quarter of our global subscriber base.
Just the pluses overall ARPU this quarter was $4.52, however, excluding Disney plus Hotstar it was $5.30.
On our last earnings call, we said that we expected the fourth quarter operating results of our DTC businesses.
Says to improve by approximately $100 million relative to the prior year quarter.
Our results came in better than that guidance with operating income at our DTC businesses, improving by approximately $300 million versus the prior year due to better than expected perform.
Pharmas across all three of our streaming services.
I will note that we do not plan to further update any of our subscriber numbers until our Investor day on December 10th.
At our international channels lower results were due to lower affiliate and advertising.
Total revenues, partially offset by a decrease in costs.
Switching gears I want to take a moment to give you an update on our 21 CF acquisition.
We've previously stated our expectation that the deal will be accretive to EPS, excluding the impact of purchase accounting for 50.
For type 2021.
While Covance certainly had an impact on these numbers, we estimate the acquisition of 21, CF and the impact of taking full operational control of Hulu were accretive in both Q3 and Q4 of fiscal 2026.
Excluding the impact.
After purchase accounting.
As a practical matter given our recent reorganization and the successful and complete integration of these assets into the Walt Disney Company. It is no longer practical nor do we believe it would be insightful into our businesses to breakout 21 CF performance.
Therefore, we do not intend to discuss legacy Fox results or accretion on a go forward basis.
As we've discussed on prior calls while our liquidity position remains strong we are continuing to manage our leverage with a long term commitment to return to levels consist.
With a single a credit rating.
As part of that commitment and given limited visibility due to coded and our decision to prioritize investment in our DTC initiatives. The board has decided to forgo payment of a semi annual dividend in January 2021.
Our capital allocation strategy, we will continue to prioritize investing in the growth of our businesses, particularly in the direct to consumer space.
However, we anticipate the payment of the dividend will remain a part of our long term capital allocation strategy follow.
Following the return to a normalized operating environment.
As we look forward, we expect that our results in fiscal 2021 will continue to be impacted by COVID-19.
Our visibility is limited and we will be influenced by a number of factors including.
But not limited to the recovery of the optical exhibition.
Confidence in consumer travel.
And the continued resumption of live sports, but.
But as we sit here today there are few items, we would like to highlight that may help frame expectations for the first quarter.
Our parks and experiences business continues to be impacted by COVID-19, we.
We do not have visibility into how long these impacts will last well.
While some of our parks are open with limited capacity. We currently anticipate Disneyland resort will remain closed at least through the.
End of the fiscal first quarter.
Disneyland Paris is also currently closed.
Because we have no significant tent pole theatrical releases planned for Q1, we expect that our theatrical results will be meaningfully below the prior year during which we.
The least star Wars rises skywalker and frozen too.
We also anticipate that home entertainment stage play and studio TV as Svod results will be meaningfully lower year over year.
Similarly, our consumer products, we expect merchandise licensee.
Results in Q1 to be adversely impacted due to comparisons versus star wars and frozen merchandise in the prior year.
At ESPN first quarter results will be significantly impacted by higher rights and production costs due to the shift of four and BA finals games.
Gains and three additional college football playoff games into the quarter.
Along with incremental regular season college football rights cost shifting into the quarter.
This impact is partially offset by an expected delayed start to the 2000 22021 and BA.
The reason.
We expect the Q1 operating results of our DTC businesses to decline by approximately $100 million relative to the prior year quarter, driven by continued investment in Disney plus partially offset by improved results at both ESPN plus.
And Hello.
At our international channels business, we expect first quarter operating results to decline by approximately $300 million versus the prior year quarter, driven by a combination of higher sports rights costs due to timing shifts cobot related impacts and channel post.
Waters.
Our capital expenditures in fiscal 2020 were approximately $4 billion down about $850 million from the prior year due to decreased spending at our domestic parks and resorts.
We expect Capex in fiscal year 2020.
Fine to be $550 million higher versus fiscal year 2020, due to increased investment at our media and entertainment distribution businesses and at corporate partially offset by reduced spending at parks experiences and products.
As weve.
The previously noted we will start reporting under our new organizational structure in the first fiscal quarter of 2021.
While our reporting segments will change, we intend to provide key financial and supplemental information, including much of what we report today, particularly as.
As it relates to our direct to consumer businesses.
As always our goal is to provide the needed transparency into our businesses.
We remain very excited about our future and we also look forward to sharing more details on our revolving DTC strategy at our December.
Send virtual Investor day.
And with that I will turn the call over to low and we would be happy to take your questions.
Yes.
Okay, Thanks, Christine and as we do transition to the culinary let me note that since we are not physically together. This afternoon I will do my best to moderate this by directing your.
Two questions to the appropriate executive and with that operator, we are ready for the first question.
Of course, our first question will come from Michael Nathanson with Moffettnathanson. Please go ahead.
Thanks, All I have to for you to to Shepherd. The first is on ESPN and just announcement.
Cross cuts well I wondered if the companies take a fresh look at their content rights needs and if theres any.
It kind of update on on your willingness to maybe cut back on some of the the rights there had a previous or how to think about that and then secondly for wherever you want to send it to you over the years Disney.
Hi, Smart decision to cut back on the number of films or at least every year to focus on quality of franchises and I just wonder now with the reorganization and the new game plan a DTC.
How will the quality or the franchises on a content output be managed as as is increased right. So it looks like it's a change in terms of the output.
The organization just want to hear about the quality of adamant about thankful.
Okay, Michael Thanks, I am going to turn both of those over to Bob All right. Thank you Mo Hi, Michael.
And Charles of DS and the cost cuts, we are obviously watching our costs across all of our operating units very carefully.
Slide of the adversity that were facing with the pandemic, but long term.
As we look at our content right now we're looking at it from a shareholder standpoint, if it's accretive to shareholder value than their decisions that we make going forward in terms of looking at new rights as they expire and what we want to.
Put onto our service.
So we're being very deliberate and were being very careful and analyzing everything to make sure that it would be something that would be additive to us and I might say that we've got very good relationships with all the leagues.
And it's important we continue to believe in sports.
Matter of fact in 2000 1993 of the top 100 programs in viewership on television were sports is as you know we've got the most trusted brand out there in the world in terms of sports. So we believe thats a nice recipe for future success, but we realize that the world is changing and there is a lot of dynamics at play.
But will only do continue rights deals as long as they add shareholder value in terms of the second question in terms of the.
Looking at the number of films and the amount of content that we put into the system year right over time, we've been very very discriminate in terms of what types of films, we make and how many we make and I think thats really.
[noise] benefited the company we're in a world, though now in a subscription business, where we're managing churn and we've got a unique combination of assets. In this company that are all at play right now and Disney plus where weve not only got the most desirable library in the world, but we realize and that really helps by the.
Minimize churn, but we also realize that new content that we've put add subscribers is very clear to us as new content add subscribers. So I think you'll see a continued increase in investment.
In our direct to consumer platforms and that will then review some of the growth that Christine will talk about at the Investor Conference that we expect.
On December 10.
Okay.
Michael Thanks for your color Okay. Thanks, Michael for your questions. Operator next question. Please. Thank you. Our next question will come from Alexia Quadrani with JP Morgan. Please go ahead.
Thank you.
I have a follow up question, if I may on on that studio.
In content commentary.
I would love any color you get potentially on you now.
What you bought some release of move on them to print and video on demand and really how you think about I think how you thought about it in the past.
Listen to allocate content on different platforms for example, why Milan goes to.
But.
Going directly to Disney cost for example, so any thoughts there and then second just follow up questions really on the parks you've made some real improvement in cutting our losses. This quarter from the last quarter. I guess is it feasible to assume you can continue to see further improvement not segment without Disneyland openings.
Thank you.
Ill.
Yes. Thanks, so much so Bob ill turn on both overdue Milan in Seoul, and then some of the.
Trends, we're seeing a parks okay, great. So from a studio content standpoint, we were very pleased with the result of Milan as a premier axis title and as you remember that was our very first foray into.
Strategy.
So like Premier access.
Unfortunately that that title met with some controversy both in the us and internationally. Shortly after we released it but we saw enough with very positive results before that controversy started to know that we've got something here in terms of the premier access.
The strategy and I think we'll talk a little bit more about that at the Investor Conference in December in terms of Seoul, We also realized though that part of the lifeblood of Disney plus is providing great content.
To the base level subscribers that are in there.
In Premier are in 50, plus and so.
So the idea is that we thought it was a really nice gesture to our.
Subscribers to take sold during the holiday period and provide that as part of the service, but I think what we've learned with Milan is that theres going to be a roll forward strategically with our portfolio of offerings and again, we're going to talk more about.
That at the Investor Conference in December.
In terms of our opportunities to continue to improve parks were actually very encouraged by what we're seeing right now in our parks across the world.
Theres really two dynamics that are going on number one our park operators, which as you know are the best in the world are becoming much more efficient.
In effect is an operating under Colby guidelines, and we've been able to pretty materially increase our capacity and still stay within the guidelines that local governments are giving us for example, six foot social distancing and this is happening across the across our parks across the world in fact, Walt Disney World.
Which was added 25% capacity constraints, which was our industrial engineering estimates to keep six with social distancing now has been able to increase to 35% of capacity so almost a 50% increase in.
The number of guests that we can allow in and still.
Adhere to the local guidelines and the guidelines that are.
Stipulated by the CDC with this six foot social distancing. So we're very pleased by how we've become adept at operating under these constraints, but the second thing Thats, even more encouraging is the demanding demand that is growing for our parks across.
World of World.
I think it's as two different things number one shows that love that guest half our experiences that we have within our parks and the tremendous IP that we have as a company have but I also think it speaks to the trust that people have given the track record that we now have after months of operating across the globe.
With very stringent guidelines.
And we're very pleased with our track record and I think people are now through forward bookings and reservations showing some very encouraging signs about their willingness to come and spend time with us and that is before.
Thank you.
Alexia Thank you.
Just to hear from you operator next question. Please our next question will come from Ben Swine burn with Morgan Stanley. Please go ahead.
Thanks, Good afternoon.
Christine I know, you're not going to be providing the accretion dilution analysis going forward and I certainly get a lot of moving pieces, but I'm just wondering if you.
Good tell us whether there are additional costs that you expect to come out of the business. I think you guys have talked about over $2 billion of synergies and just wondering if we look at 21 versus 20, if there's still more to go as you work through the integration et cetera.
And then.
Probably for Bob Bob I know, you're saving a lot.
For December 10th, but you've announced a pretty substantial reorganization of the company in any year. That's obviously already had a lot of disruption, particularly around the direct to consumer business with Kevin, leaving et cetera. Im just wondering if you could talk a little bit more about your motivation there.
Kind of the reaction you've gotten from your senior executives many have had.
I've had their role shift pretty substantially including giving up kind of CNL accountability. Just wondering if you could talk about your confidence that you you're going to get what you want out of this from a company perspective and that you can manage the risks of set.
Separating content production decisions for monetization decisions, because it's a pretty substantial change. Thank you.
Okay, Hi, Ben.
Hello.
Christine.
Let me take your first question, which was on the the cost savings that we achieved from the integration of 21, CF and we did meet actually we exceeded that 2 billion number and so we feel really.
Hey, good about the momentum we have on the efficiency side and we're also going to take the opportunity to continue looking for operational efficiencies.
The one thing we've learned in this current environment is there are ways of being more efficient and we will continue to mine those and it actually has.
It's really helped us not only.
In segments like our parks business that are directly impacted but throughout the entire company. So we'll continue to do.
Drive towards greater efficiencies.
And when you asked about how much do we incur in the restructuring charges related to Fox overall Fox.
Restructuring charges.
Were $1.7 billion and $1.2 billion of that was incurred in fiscal 19. So 500 was done this year and in this quarter, where we had about a little under $400 million of restructuring charges. A portion of that was also fox related it comes out to about a little lower.
Is there a little less than 30%. So the balance was related to our our our pets at reductions in force at parks.
Got it in terms of the question on the reorganization.
I would suggest that maybe given everything that's happening in world. This is the perfect time.
For us to do such a reorganization and I'm, 100% confident that this is going to play out exactly as we had intended it's going extremely well and despite this disruption in everyone's roles I think we have 100% buying and I think we have 100% by end because we have clarity on accountability, which everyone really likes and.
We separate out rolls to what people tend to do best content does what they do best and same with distribution. So distribution, who manages the PML will set the parameters for annual and long term budget framework. That's then agreed to on the slate with the content creators and the content created.
The person greenlight the individual projects within Shepherd development and production, so essentially distributions now able to optimize the commercialization without maybe too much unnecessary and regard for legacy distribution platforms, but at the same time, our Creatives, who as you know are the best in the.
A world are really free to do what they do and Thats just make the best content and storytelling as possible a lot of collaboration.
Between the two groups, but ultimately some level of independence in terms of each being what they can be and doing their jobs best.
Thank you.
Okay, Ben Thank you.
Andrew Operator next question please.
Our next question will come from Jessica Reif Cohen with Bank of America Securities. Please go ahead.
Thank you, Matt two questions as well.
Can you comment on the change of management Star does that affect your strategy in India or outside of.
But the rollout of the star brands its service.
And then secondly, sorry to be negative, but is it the sports viewing decline.
I mean, there's just so much going on and I Wonder if you could give us your thoughts there.
There was no fans of the stadium so change the viewing experience calendars changed there is a lot of sports in a short period of time.
Time do you have any concerns about how this will impact consumer behavior post covered on love your thoughts on kind of the longer term outlook for sports Okay.
Okay, Jessica Thanks, I am going to turn both of those questions over to Bob.
Okay, I'm going to take the last one first in terms of sports right.
Portrayed as we feel that in context of everything that's happening are actually holding up quite well, but we will be careful not to draw any conclusions about the ultimate health of sports sort of the long term impact that you suggested during this pandemic, we really think that were sort of looking at apples and oranges here.
I think the best Comping, probably half is the NFL, which has been relatively flat our Monday night football viewership is down 4% relatively modest despite all the headwinds I mean, we've got the risk of seasons not finishing to your point, we don't have fans in the stands we have the risk of gains individually every week fees.
And canceled we have election news as competition.
And.
We really can't have our fans doing what they like to do the best which is large and a communal setting.
Pretty much are watching by themselves. Despite all those headwinds the fact that our Monday night football business is relatively flat in terms of viewership is really.
I think really encouraging and if you adjust if you will viewership.
Over the last couple of months for the amount of available content you see that they kind of slight together. So we actually don't have any concerns about the long term health of sports obviously, we've got some headwinds as it pertains to short term challenges and.
Hurdles, but.
We think that all in all in context.
The health of sports is pretty decent given everything that's going on.
In terms of India, obviously, we have an executive there.
Good day Shankar, we love and we wish him well he gave us some indication several months ago that.
He was thinking of moving on Weve got a really deep bench there.
And we feel that we have all kinds of opportunities and a lot of success, so far with Disney plus and we have no reason to believe that that success won't continue and even accelerate going forward.
Thank you.
Thank you operator next question. Please our next question will come from Doug Mitchelson with Credit Suisse. Please go ahead. Thanks.
Thanks, So much I'll I got two quick ones and then a main question. The quick ones are the math on India I think if I have it right based on christine's comment around $5 or 30 cents you're around a lot.
11 million subs, which would be about two and a half million added in the quarter I just wanted to make sure that was in the ballpark and I was looking for an update on the cruise ships that were on order.
But the main question is having to re up some dizzy plus distribution deals or what changes are you seeing now now there are the uncertain law.
Jayson the value on both sides as better define for for you and for the distributor to the economic slow fuel change or should we think about the cost of that marketing channel is locked in at I mean, I also ask because as you add more and more original content. Your streaming services I would think the.
And if it starts to shift and favor the distributors.
As you add more and more valuable.
Well services, so that'd be helpful. Thank you.
Okay. So I'll, let christine sort of quickly address or into your question and then I'll turn over the crews and the Disney plus questions to bump.
Okay Hi.
We're not.
The comments that I gave on.
On the on the Hotstar Disney.
Any plus India.
We just don't comment on those economics, so I'm.
Unfortunately, we can't give you any more detail on that.
And in terms of cruise ships.
As you know, we just got new guidelines from the CDC that are quite thorough.
Let's say.
And they really entail some really high hurdles in terms of not only testing by the potential guests.
Guest that we post on the ships, but also a process that has to happen in order to certify our first sailings those will necessarily result in delays.
Beyond what we had hoped in terms of getting our.
Ships back in service and making magic for our guest I guess, the best news out of all of it is that we now do see some light at the end of the tunnel I think we have an opportunity to create sort of a Disney bubble. If you. One if you would on each one of our cruise ships and demand.
And is very very strong for cruise ships were seeing extremely strong demand in the back half of fiscal year 21, and all of 22 in start in terms of.
Bookings that said that then create the demand for the new ships that you asked about and right.
Right now, we're anticipating delivering our first new shift the wish in summer of 2002, and then we have our next two ships in 24 and 25 and so after a slight delay of roughly six months on those ships.
We think that we're going to be able to bring them onto a service we hope and.
And aspect that the world will be back to normal by then and anticipate having.
A.
Find times trying to fill up the demand of those ships and we think there's going to be so much pent up demand that we don't expect to have much issues given the love that our guests have for Disney cruise line in terms of the distribution deal.
And it's in sort of the changing landscape over time.
With those we're really pleased with our partnered partnerships to date, we try to limit them, we know due to many but we use them to strategically pursue our.
Growth of our subscriber base and lower set of subscriber acquisition cost. So as you know we have one or two of these.
In each market thats about it but it really does help us sort of provide a base during our growth phase and we've got full flexibility over time to either ramp those up or ramp those down as we see fit.
Great. Thank you.
Thanks, Doug Operator next question. Please our next question will come from Jason Bazinet.
Citi. Please go ahead.
Just a question for Mr trick I kind of go back to their reorder that you announced.
Yes.
The more content it seems that you put on the DTC side.
The the lower your earnings will be but the better the sub growth will be in the higher the stock price.
It will be and so as those decisions are being made today and next year in the hereafter are there are there guardrails in place that sort of mean this will be a gradual transition or is it really whatever the right business decision is the right business decision and you'll do it even if it means maybe.
Different near term financials.
Terms of profitability than the street is expecting thank you.
Yes, I think the guard rails are good common sense as it pertains to managing cash.
With our parks business sort of being you know.
Having an anchor on it if you will that we can properly.
Operate our parks business like we'd like to we have to be a little bit more careful.
Today than we might have to be in the future, but I'm just suggest that when we talk to everybody on December 10, I think you're going to see that we're going to put a lot of wind in the sales of our Disney plus business and heavily invest.
On it and so the guard rails are just the only ones that would be the constraints that we face today in terms of cash other than that.
Everything is really.
Full speed forward and of course, we've got our linear networks that we're managing we've made some reductions just this last week and he.
SDN as we manage the transition from linear to more of a.
Digital experience and a direct to consumer experience and so as we toggle that balance between sort of the legacy all media businesses to the new media businesses will do it aggressively.
We will watch it from a cash standpoint in the meantime.
That's very helpful. Thank you.
Jason. Thank you operator next question. Please our next question will come from John Hodulik with RBS. Please go ahead.
Great. Thanks, maybe just a quick couple of few few follow ups to Jason's questions.
Bob in terms of the cashier at 18 billion on the books.
I guess is can we expect a significant like you said a significant ramp in the content spend and can we assume as a result of that that the the progress you guys have made in terms of the DTC losses.
Doesn't mean that those losses peaked at this point and then can you talk a little bit about content spend is really.
Relates to entertainment program going into it gives the processing and Hulu and star and and SPM plus 10, plus obviously has been out.
There are some nice growth there I'm getting up to 10 million subs do you expect to ship more your portfolio from or simulcast it from linear to DTC plan.
Should we expect some investments in new rights. Thanks.
Okay. John Thanks for the question I'm going to let Christine take the first question around cash and then Bob talked a little bit more about programming investment.
Great. Thanks.
Okay.
Hi, John It's Christine.
You are right that arc.
Cash and cash equivalents are very healthy $18 billion, that's down from 22 million in the prior quarter.
Just to put some context around the reduction we lowered our commercial paper balances by almost $5 billion and we also had some bond maturities over 1 billion.
None that we took care of.
But we are still generating operating cash and we are investing in our content now we're spending a lot of our productions are back up and running so we're going to manage this but as we ramp up even more additional.
More additional new products.
Production, we will be.
Spending more cash on that but we will follow this up and when the peak of investment is anticipated. We will update you with that information on December 10th.
And my answers are going to be relatively the same in terms of the programming.
Between our linear in our DTC business first of all our Christine will talk about sort of the guidance at the at the Investor Conference specifically in terms of you we have our losses peak, which was your direct question.
And though additionally, we will be investing heavily.
We will talk again about more about this at the Investor Conference, but we are going to continue to ramp up our investment in DTC and we will be heavily tilting the scale from linear networks over to our DTC business as we see that as we said in our opening comments our primary catalyst for growth as a company.
So again, we're going to talk a lot more about this on December 10th, but you will see a heavily heavily tilt.
Okay. Thank you.
John Thanks for the question operator, we have time for one more question. Thank you and our final question today will come from Michael Morris with Guggenheim. Please go ahead.
Thank you. Good afternoon. Two for me first can you talk about the AD revenue per fully subscriber decline in the quarter that you referenced in the release just given the strength that we're seeing in this sort of connected TV marketplace. I was kind of surprised to see that so I'm curious your take on on how that business is going and.
How we should think about that.
My second question is really a follow up to one of the early ones around sports and sports content.
And I'm curious, how you think about expanding sports content availability to consumers that don't have pay TV package I think at this point, there's 30 or 35 million households in the us Bobby.
You just referenced some of the stability and rating so maybe that would imply that people want sports still take pay TV and so it's not an issue, but I'm curious if the leagues have any increasing urgency to sort of reach those those cord cutters or cord, nevers and and maybe what some of the considerations ARPU, whether its financial impact or whether its rights limitations I think.
Thank you.
Okay, Okay, Mike So I'm going to let Bob take the sports question and then we'll go to Christine on the Hulu question.
Okay in terms of the sort of the cord cutters and solutions for the partners I won't speak to what the leaks thoughts are I'll leave that up to them, but I will tell you that.
Got a product that we're really excited about and has experienced some rapid growth and thats, who plus life TV and it really gives the utility that consumers might normally fine from the cable or satellite subscriber and be able to get it over the top directly to their homes and I think this will increasingly act as a solutions.
Lesions on those households that have walked away.
Well from their their traditional more traditional cable type.
Subscriptions and potentially slight it over to Hulu, plus like TV and Thats one of the reasons why we're really bullish about that business.
On the personal big fan of it.
I use it and it's really slick, it's very elegant and it really is as Dave solution provider. Its really the complete solution I think so we're excited about that in terms of solving a consumer need for those consumers as you mentioned that have or walked away from that particular.
Way of distributing and this is not there.
Hi, my thinking on Hulu.
Overall, I would say that we're seeing very very strong.
Demand for advertising on Hulu in the addressable market.
The year over year comparisons were negatively impacted on a per sub basis by what we're seeing in the average.
Advertising market overall.
In Q3 in Q4, but we're going to talk more about who advertising.
In more detail at the Investor day, So just hold on until December 10th and hopefully we can answer all your questions then.
Great. Thank you.
Okay, Mike Thank.
Got you and thanks again, everyone for joining us today as Bob and Christine have mentioned, we're looking forward to sharing a lot more with you at our December 10th Investor Day.
And we'll look forward to seeing a lot of you then.
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 quarterly reports on form 10-Q and in.
Other filings with the Securities and Exchange Commission. This concludes today's call have a great rest of the day everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Ladies and gentlemen, thank you for standing by and welcome to Disney's [laughter], both full year and Q4 2020 earnings results Conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you want me to.
Press Star one on your telephone please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker Mr., both singer Senior Vice President Investor Relations. Please go ahead.
Good afternoon.
Welcome to the Walt Disney Company's fourth quarter 2020 earnings call.
Our press release was issued about 25 minutes ago and is available on our website at www Dot Disney Dot Com forward Slash investors todays call is also being webcast and a transcript of this call will be available on our website.
We realize many of you are joining us today from your homes and we're also hosting today's call remotely. So joining me from their homes or Bob Cherry pick Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.
Following comments from Bob and Christine we will of course be happy to take some questions. So with that let me turn.
All over to Bob to get started.
Thanks, Hello, and good afternoon, everyone.
As we close out the fourth quarter and reflect back on the year I think we'd all agree it's been a year. Unlike any other in our lifetimes and certainly in the history of the Walt Disney Company. Despite.
Despite the many challenges and hardships.
I'm proud to say, we have been steadfast in effectively managing our businesses under enormously difficult circumstances.
We haven't just persevered during these tough times.
Also taken a number of deliberate steps and smart risks have positioned our company for greater long term growth.
Hello.
And the impressive resilience Disney has demonstrated while looking past today's challenges to set the stage for an even brighter future is direct reflection of our outstanding team.
They've done and continue to do an admirable job balancing the needs.
Growth of our cast our shareholders and our guest.
Of course, the real bright spot amidst the pandemic has been our direct to consumer business one year ago today, we launched it plus and it has quickly exceeded our highest expectations.
We have since rolled off the service.
This is more than 20 countries worldwide.
Tuesday, we will launch in Latin America, including Brazil, Mexico, Chile, and Argentina, followed by more overseas markets in the coming year.
The response from consumers has been overwhelmingly positive every.
Everywhere that we've won.
Disney plus audiences have embraced the wide array of high quality entertainment, both the original and library content.
I'm pleased to report that as of the end of the fourth quarter, you plus had more than 73 million paid subscribers far surpassing our expectations just.
Its first year and we.
Continuing to see positive trends during our Investor day presentation on December 10, we will provide an update of our global subscriber numbers.
The growth of Disney plus speaks volumes about the strength of our IP, our unparalleled brands and franchises.
And our amazing content creators all part of that is the difference that sets us apart from everyone else.
And when you look across our full suite of streaming service, we have exceeded 120 million paid subscriptions worldwide with impressive subscriber.
Five of gains for SPM, plus and who and who including the rapidly growing kulu plus slide TV.
We expect the international launch our Star branded General Entertainment offering will enable us to grow our business even further in the years ahead.
Given that.
Our DTC business is key to the future.
Growth of our company, we've restructured our media and entertainment businesses.
By separating content creation from distribution.
We've been able to streamline our processes and better align the organization towards these important strategic objectives.
As we accelerate our pivot to a DTC first business model.
We intend to build upon the success, we've achieved thus far and look forward to sharing more of our plans with you at our upcoming Investor day.
While the pandemic continues to impact our company.
Resulting in an adjusted loss of.
20 cents a share in the fourth quarter. The prolonged situation has prompted us to find new and innovative ways to deal with the difficult and often unpredictable challenges we're facing we.
We successfully made adjustments and have resumed many of our operations clearly demonstrating the resiliency, but well.
The company is known for.
While many of our productions were shut down beginning in March due to cold in our animation teams were able to work remotely and have continued production uninterrupted during the pandemic. We're also fortunate to keep other parts of our creative pipeline active and to continue post production work.
For our media networks studios and business plus we.
We've been able to develop processes and institute health and safety measures that have made it possible to resume live action protection as well of.
Of course, the unpredictability of Colgate May result, in unforeseen impacts to current and future productions.
On the studio side, we have restarted or completed production on all of the projects previously impacted by Kobe, including one from our Marvel Studios'.
Twentyth century Studios Searchlight Pictures Disney live action and Lucasfilm.
And we anticipate having eight new projects up and running.
By January.
On the TV side, we now have more than 100 live action scripted and unscripted projects and active production with dozens more in various stages of pre or post production.
Across all platforms. There has been a great response to our content.
A couple of weeks ago, we rolled out the highly anticipated second season of the mandel oriented to rave reviews and incredible social buzz.
There has been much excitement surrounding the announcement that Disney Pixar sold will be debuting on his b plus on Christmas day, and on the broadcasting side Avi.
One is now ranked number one delivering some of the most popular and most watched shows on television, including dancing with the stars and the Connors.
I want to take this opportunity to acknowledge our incredible local and national APC news teams for the outstanding work. They continue to do under very different.
The old circumstances, they been working round the clock, making sure viewers nationwide has access to the most important and accurate information, particularly as it pertains to the cobot pandemic and they've also done an outstanding job reporting on the election, and an informative and balanced way from good morning America.
A holding it spot as the number one morning newscast for the eighth straight year.
To World News Tonight, with David year consistently ranking as the number one evening newscast as well as a number one program on all broadcast and cable television in the us over the summer there is no question Avi.
See news is America's number one news source.
On the Parkside, we've proven over many months that we're able to operate our parks responsibly. Following strictly enforced guidelines provided by healthcare experts successfully reopening our parks in Orlando Shanghai.
Hi, Tokyo and Hong Kong.
We've also reopened Disneyland Paris for several months, although the resort is now temporarily closed due to president microns recent lockdown order in response to a resurgence in cobot cases in Europe.
People have shown a willingness to visit our parks, which I believe is a testament.
So the fact that they feel confident in the measures we've taken.
And we are very encouraged by the positive news earlier this week on the progress of potential vaccine.
Unfortunately, we are extremely disappointed that the state of California continues to keep Disneyland closed despite our proven.
On the back record.
Our health and safety protocols are all science based and have the support of labor unions, representing 99% of our hourly cast members frankly, as we and other civic leaders as stated before we believe state leadership should look objectively and what we've achieved success.
Lastly, at our parks around the World all based on science as opposed to setting an arbitrary standards as precluding our cast members from getting back to work, while decimating small businesses in the local community higher.
Our ability to operate responsibly in this pandemic environment extends beyond our theme parks I'm proud to say that we were.
Successfully able to host the NVCA and MLS at Walt Disney World in Orlando.
It's been a huge undertaking and a great achievement.
Just consider the MD for example, now.
94 days 22 teams 172 games players broadcast partner.
Burners referees media support staff and Disney employees all in the bubble.
It was also a big win for ESPN, which broadcast the games along with a pack schedule of other sports offerings, including the WMV College Football Major League baseball and the NFL.
As you look at the most watched cable shows on TV. This year more than half have been live sports proving that sports are a powerful drop despite the disruption of the pandemic.
SPM digital and SPM plus have also performed exceptionally well with September being the best month ever for.
B and streaming video.
SPM plus continues its positive subscriber growth, reaching more than 10 million paid subscribers as of the end of the quarter nearly tripling in size over the past year.
As you can see even during these most uncertain times, here's the Walt Disney Company, where.
Finding ways to not only operate our businesses effectively but also take the necessary bold steps for our future growth.
And we are more committed than ever to investing in our businesses in particular, our DTC strategy, which we see as the key driver of significant long term value for our company.
We look forward to sharing details of our plans with you at our Investor Day next month, we also can't wait for you to see the extraordinary content, that's being created for our full portfolio of streaming services Disney plus.
SPM, plus Kulu and star, it's just fantastic and with that.
I'll turn it over to Christine.
Thanks, Bob and good afternoon, everyone.
Excluding certain items affecting comparability the fiscal fourth quarter's diluted earnings per share was a loss of 20 cents.
And our full year fiscal 2020 diluted EPS was $2.02.
Our funding.
Till results continued to reflect significant impacts from COVID-19, which we estimate adversely impacted segment operating income in Q4 by $3.1 billion.
Our parks experiences and product segment was again, the most severely affected with an estimated adverse impact.
Of $2.4 billion in the fourth quarter.
We estimate that media networks operating income was negatively impacted by approximately $500 million due to coated largely due to higher rights costs at ESPN associated with programming in the fourth quarter that was delayed from prior.
Quarters.
Another factor that affected our Q4 results was a 50 threerd week, while last quarter, we guided to the 50 Threerd week, having a modest adverse impact on operating results. The additional week of operations actually resulted in a benefit.
There were a few reasons behind this variant.
Yes, but the largest driver was related to the timing of sports rights costs.
I'll now turn to our results by segment.
At parks experiences of products financial results in the quarter were significantly impacted by restricted capacity and closures.
Operating income at parks experience.
Incident products declined significantly versus the prior year to an operating loss of $1.1 billion.
This reflects the closures of Disneyland resort in California, and our cruise line business for the entirety of the quarter.
Shanghai Disney Resort was opened for the full quarter after reopened.
Opening in May while Walt Disney World Resort, and Disneyland Paris reopened in mid July Hong.
Hong Kong Disneyland resort was opened for a couple of weeks at the beginning and end of the quarter.
All of our reopen parks and resorts were operating at significantly reduced capacities during Q4.
However, we are pleased to report that Walt Disneyworld, Shanghai, Disney Resort, and Hong Kong Disneyland all achieved a net positive contribution in the quarter, which means we generated revenue that exceeded the variable costs associated with preopening.
At Walt Disney World We.
We are also encouraged by the booking trends we are seeing.
Eric reservations at our reduced capacity limits are already 77% booked for Q1 with Thanksgiving week booked close to capacity.
These trends provide us with further confidence around underlying consumer demand.
And for our parks and experiences.
At studio Entertainment operating income decreased in the quarter due to lower theatrical distribution and home entertainment results.
Worldwide theatrical results continued to be adversely impacted by COVID-19 as theaters.
These were closed in many key markets, both domestically and internationally.
With no significant worldwide theatrical releases in the quarter, we faced a difficult comparison against the strong performance.
The Lion King and toy story four in the prior year quarter.
The decrease.
This was partially offset by lower marketing expenses.
Lower home Entertainment results were driven by lower unit sales also partially offset by lower marketing expenses.
Unit sales were lower in the quarter as there were no comparable releases versus the prior year performance.
Ventures, endgame, Aladdin and captain Marvel.
Turning to media networks operating income was up in the fourth quarter due to higher results at broadcasting, partially offset by lower results at cable networks.
At broadcasting the increase in operating income.
Was primarily due to affiliate revenue growth and lower programming production and marketing costs.
The decrease in programming and production costs was largely driven by COVID-19 related production shutdowns and cancellations of network programming.
The shift of college football games.
To fiscal 2021, and a delay in aerie new season premieres.
Lower results at cable networks were driven by decreases at ESPN, partially offset by increases at FX networks and the domestic Disney channels.
ESPN results.
Rates were lower as affiliate and advertising revenue growth were more than offset by higher programming and production costs.
At ESPN and higher programming and production costs were largely due to coated related shifts of rights costs for the NVCA in major league baseball into the fourth quarter.
This included two MB a finals games and 16 MLB post season games that fell into the 50 Threerd week.
Total SPM advertising revenue was up 26% in the fourth quarter, including the benefit of the 50 Threerd week.
The return of live sports events drove higher rates slightly offset by viewership declines.
So far this quarter ESPN domestic linear cash AD sales are pacing below the prior year, primarily due to shifts in college football schedule, particularly for the Big 10, and the Pac 12.
Given the timing of programming remaining in the quarter. We currently expect that ESPN advertising revenue will end, the first quarter higher versus the prior year.
Total media Networks' affiliate revenue increased 12% in the quarter.
This was driven by a.
Oil and a bit of eight points from the 50 Threerd week in eight points of growth from higher rates offset by a four point decline due to a decrease in subscribers.
The decrease in subscribers benefited by about two points from the launch of the HCC network.
At direct to consumer.
We're in the international an operating loss of $580 million in the quarter was an improvement of approximately $170 million compared to the prior year.
This improvement was driven by higher results and Hulu and SPM plus partially offset by.
Costs associated with the ongoing rollout of Disney plus and a decrease at our international channels.
At Hulu the improvement was primarily due to both subscriber and advertising revenue growth, partially offset by higher programming and production costs.
The improvement at.
PM plus was due to subscriber growth as well as increased pay per view income from new FC events.
Who ended the fourth quarter with 36.6 million paid subscribers and ESPN plus ended the quarter with 10.3 million paid subscribers.
Disney plus ended Q4 with 73.7 million paid subscribers or an increase of over 16 million subscribers versus Q3.
Disney plus Hotstar subscriber additions were the largest contributor to this increase driven by the start of.
The delayed IPO season.
Disney plus Hotstar subscribers now account for a little over a quarter of our global subscriber base.
Disney Pluses overall ARPU this quarter was $4.52, however, excluding Disney plus hot.
Our it was $5.30.
On our last earnings call, we said that we expected the fourth quarter operating results of our DTC businesses to improve by approximately $100 million relative to the prior year quarter.
Our results came in better than that guidance.
With operating income at our DTC businesses, improving by approximately $300 million versus the prior year due to better than expected performance across all three of our streaming services.
I will note that we do not plan to further update any.
Star subscriber numbers until our Investor day on December 10th.
At our international channels lower results were due to lower affiliate and advertising revenues, partially offset by a decrease in costs.
Switching gears I want to take a moment to give you an update on our 20.
Everyone CF acquisition.
We previously stated our expectation that the deal would be accretive to EPS, excluding the impact of purchase accounting for fiscal 2021.
While coded certainly had an impact on these numbers, we estimate the acquisition of 21 CF.
Many of the impact of taking full operational control of Hulu were accretive in both Q3 and Q4 of fiscal 2020.
Excluding the impact of purchase accounting.
As a practical matter given our recent reorganization and the successful and complete integration of.
Assets into the Walt Disney Company. It is no longer practical nor do we believe it would be insightful into our businesses to breakout 21 CF performance there.
Therefore, we do not intend to discuss legacy Fox results or accretion on a go forward basis.
And.
As we've discussed on prior calls while our liquidity position remains strong we are continuing to manage our leverage with a long term commitment to return to levels consistent with a single a credit rating.
As part of that commitment and given limited visibility due to coded and artists.
As vision to prioritize investment in our DTC initiatives. The board has decided to forgo payment of a semi annual dividend in January 2021.
Our capital allocation strategy, we will continue to prioritize investing in the growth of our businesses.
Particularly.
In the direct to consumer space Howie.
However, we anticipate the payment of the dividend will remain a part of our long term capital allocation strategy. Following the return to a normalized operating environment.
As we look forward, we expect that our results in FIS.
Fiscal 2021 will continue to be impacted by COVID-19.
Our visibility is limited and we will be influenced by a number of factors, including but not limited to the recovery of the optical exhibition comp.
Confidence in consumer travel.
And the continuous.
Food resumption of live sports.
But as we sit here today there are a few items, we would like to highlight that may help frame expectations for the first quarter.
Our parks and experiences business continues to be impacted by COVID-19 and.
We do not have visibility.
Indeed, how long these impacts will last week.
While some of our parks are open with limited capacity. We currently anticipate Disneyland resort will remain closed at least through the end of the fiscal first quarter.
Disneyland Paris is also currently closed.
Because we have no significant tenfold theatrical releases planned for Q1.
We expect that our theatrical results will be meaningfully below the prior year during which we released star Wars rises skywalker and frozen too.
We also anticipate that home entertainment.
Dave play and studio TV as Svod results will be meaningfully lower year over year.
Similarly, our consumer products, we expect merchandise licensing results in Q1 to be adversely impacted due to comparisons versus star wars and frozen merchandise in.
Our year.
[noise] at ESPN first quarter results will be significantly impacted by higher rights and production costs due to the shift of for an MBA finals games and three additional college football playoff games into the quarter.
Along with incremental regular season.
In the Polish football rights cost shifting into the quarter.
This impact is partially offset by an expected delayed start to the 2020 2021 and BA season.
We expect the Q1 operating results of our DTC businesses to decline.
And claimed by approximately $100 million relative to the prior year quarter, driven by continued investment in Disney plus partially offset by improved results at both ESPN plus and Hello.
At our international channels business, we expect first quarter operating results to decline.
And approximately $300 million versus the prior year quarter.
Driven by a combination of higher sports rights costs due to timing shifts coated related impacts and channel closures.
Our capital expenditures in fiscal 2020 were approximately $4 billion.
But down about $850 million from the prior year due to decreased spending at our domestic parks and resorts.
We expect Capex in fiscal year, 2021 to be $550 million higher versus fiscal year 2020 due to increased investment.
Estimate at our media and entertainment distribution businesses and at corporate partially offset by reduced spending at parks experiences and products.
As we've previously noted we will start reporting under our new organizational structure in the first fiscal quarter of 2021.
While our reporting segments will change, we intend to provide key financial and supplemental information, including much of what we report today.
Particularly as it relates to our direct to consumer businesses.
As always our goal is to provide the needed transparency into our business.
Asus.
We remain very excited about our future and we also look forward to sharing more details on our revolving DTC strategy at our December 10th virtual Investor Day.
And with that I'll turn the call over to low and we would be happy to take your questions.
Yes.
Okay, Thanks, Christine and as we do transition to the culinary let me note that since we are not physically together. This afternoon I will do my best to moderate this by directing your questions to the appropriate executive and with that operator, we are ready for the first question.
Of course, our first question.
And we will come from Michael Nathanson with Moffettnathanson. Please go ahead.
Thanks, All I have to review Q2 Shepherd. The first is on ESPN and just announcing cost cuts, but I wondered if the companies take a fresh look at their content rights needs and if there's any.
Yeah.
Update on on your willingness to maybe cut back on some of the riser had previously or how to think about that and then secondly for wherever you want to send it to you over the years Disney made a pretty smart decision to cut back on the number of films are released every year to focus on quality on franchises and I, just wonder now with the reorganization and the.
A new game plan of DTC.
How will the quality of the franchises on a content output be managed as as is increased right. So it looks like it's a change in terms of the output of the organization just want to hear about the quality of adamant about thankful.
Okay, Michael Thanks, I am going to turn both of those over to Bob.
All right. Thank you Michael Hi, Michael.
Yes, and the cost cuts we are obviously watching our costs across all of our operating is very carefully in light of the adversity that were facing with the pandemic, but long term.
As we look at our content right.
Right now we're looking at it from a shareholder standpoint, if it's accretive to shareholder value than their decisions that we make going forward in terms of looking at new rights as they expire and what we want to put onto our service.
So we're being very deliberate and were being very careful and analyzing everything.
To make sure that it would be something that would be additive to us and I might say that we've got very good relationships with all the leagues.
And it's important that we continue to believe in sports matter of fact in 2000 1993 of the top 100 programs in viewership on television were sports is as.
As you know we've got the most trusted brand out there in the world in terms of sports. So we believe thats a nice recipe for future success, but we realize that the world is changing and there is a lot of dynamics at play, but will only do continued rights deals as long as they add shareholder value in terms of the second question in terms of the.
Looking.
A number of films and the amount of content that.
That we put into the system year right over time, we've been very very discriminate in terms of what types of films, we make and how many we make and I think thats really benefited the company.
We're in a world, though now in a subscription business, where we're managing churn and we've got a unique combination.
We have assets in this company that are all at play right now and Disney plus where weve not only got the most desirable library in the world, but we realize and that really helps by the way minimize churn, but we also realize that new content that we've put add subscribers is very clear to us that new content add subscribers.
So I think you'll see a continued increase in investment in our direct to consumer platforms and that will then review some of the growth that Christine will talk about at the Investor Conference that we expect the on December 10.
Michael Thanks for your cut okay. Thanks, Michael for your questions operator.
Next question. Please. Thank you. Our next question will come from Alexia Quadrani with JP Morgan. Please go ahead.
Thank you.
But as a follow up question, if I may on on that studio content commentary.
I would love any color you could give potentially on.
What you bought from the release of move on them.
Turning and video on demand and really how you think about I think how you thought about it in the past.
Cushion to allocate content on different platforms. For example, why Milan goes to <unk>.
But saul is going directly to Disney class for example, so any thoughts there and then my second just follow up question is really on the parks.
You've made some real improvement in cutting our losses this quarter from the last quarter I guess is it feasible to assume you can continue to see further improvement that segment without Disneyland marketing. Thank.
Thank you.
Alexia. Thanks, so much so Bob ill turn on both overdue Milan in Seoul, and then some of the.
Trends, we're seeing a parks okay great.
So from a studio content standpoint, we were very pleased with the result of Milan as a premier axis title and as you remember that was our very first foray into.
Strategy like Premier access.
Unfortunately that caught that title met with some controversy both in the us.
Internationally shortly after we released it but we saw enough with very positive results before that controversy started to know that we've got something here in terms of the premier access strategy and I think we'll talk a little bit more about that at the Investor Conference in December in terms of Seoul, We also.
So realize though that part of the lifeblood of disease, plus is providing great content to the base level subscribers that are in there.
In Premier in to these losses. So the idea is that we thought it was a really nice gesture to our subscribers to take sold during the holiday period.
And provide that as part of the service, but I think what we've learned with Milan is that theres going to be a roll forward strategically with our portfolio of offerings and again, we're going to talk more about that at the Investor Conference in December.
In terms of our opportunities to continue to improve parks were actually very encouraged by.
By what we're seeing right now in our parks across the world.
Theres really two dynamics that are going on number one our park operators, which as you know are the best in the world are becoming much more efficient and effective in operating under Colby guidelines, and we've been able to pretty materially increase our capacity and.
Still stay within the guidelines that local governments are giving us for example, six foot social distancing and this is happening across the across our parks across the world in fact, Walt Disney World, which was at a 25% capacity constraints, which was our industrial engineering estimates to keep six with social distancing.
Now he has been able to increase to 35% of capacity so almost a 50% increase in.
The number of guests that we can allow in still adhere to the local guidelines and the guidelines that are.
Stipulated by the CDC with this six foot social distancing so.
Very pleased by how we've become adept at operating under these constraints, but the second thing that's even more encouraging is the demanding demand thats growing for parks across the world.
I think it says two different things number one shows the love that guest half our experiences that we have within our.
Parks and the tremendous IP that we have as a company have but I also think it speaks to the trust that people have given the track record that we now have after months of operating across the globe with very stringent guidelines.
And we're very pleased with our track record and I think people are now through four.
Forward bookings and reservations, showing some very encouraging signs about their willingness to come and spend time with us at a deeper.
Thank you.
Alexia. Thank you good to hear from you. Operator next question. Please our next question will come from Ben Swine burn with Morgan Stanley. Please go ahead.
Thanks, Good afternoon.
Christine I know, you're not going to be providing the accretion dilution analysis going forward and I certainly get a lot of moving pieces, but I'm. Just wondering if you could tell us whether there are additional costs that you expect to come out of the business. I think you guys have talked about over $2 billion of synergies and just wondering if we look at.
21 versus 20, if theres still more to go as you work through the integration et cetera.
And then.
Probably for Bob Bob I know, you're saving a lot for December 10th, but you announced a pretty substantial reorganization of the company in any year. That's obviously already had a lot of disruption.
Clear on the direct to consumer business with Kevin, leaving et cetera. Im just wondering if you could talk a little bit more about your motivation there.
Kind of the reaction you've gotten from your senior executives. Many have have had their role shift pretty substantially including giving up kind of PNM accountability. Just wondering if you could talk about your confidence that you you're going to get what you want.
Out of this from a company perspective, and that you can manage the risks of.
Separating content production decisions for monetization decisions, because it's a pretty substantial change. Thank you.
Okay and then.
Hello.
Christine let.
Me too.
Particulars question, which was on the the cost savings that we achieved from the integration of 21, CF and we did meet actually we exceeded 2 billion number and so we feel really good about the momentum we have on the efficiency side and we're also going to take the opportunity to continue.
Looking for operational efficiencies.
The one thing we've learned in this co that environment is there are ways of being more efficient and will continue to mine nodes and it actually has really helped us not only.
In segments like our parks business that are directly impacted but throughout the entire companies.
We will continue to drive.
Drive towards greater efficiencies.
And when you asked about how much do we incur in the restructuring charges related to Fox overall Fox.
Restructuring charges were 1.7 billion and $1.2 billion of that was incurred in fiscal 19. So 500 was.
He's done this year and in this quarter, where we had about a little under $400 million of restructuring charges. A portion of that was also fox related it comes out to about a little over three a little less than 30%. So the balance was related to our our.
Our cuts at reductions in force.
At parks.
Got it.
And in terms of the question on the reorganization.
I would suggest that maybe given everything that's happening in world. This is the perfect time for us to do such a reorganization and I'm, 100% confident that this is going to play out exactly as we had intended it's going.
US extremely well and despite this disruption in everyone's roles I think we have a 100% buying and I think we have 100% by end because we have clarity on accountability, which everyone really likes and we separate out rolls to what people tend to do best content does what they do best and same with distribution.
So distribution, who manages the PML.
We'll set the parameters for annual and long term budget framework that then agreed to on the slate with the content creators and then the content creators and greenlight the individual projects within shepherds development and production so essentially distributions now able.
And to optimize the commercialization without maybe too much unnecessary in regard for legacy distribution platforms, but at the same time, our Creatives, who as you know are the best in the World are really free to do what they do and Thats just make the best content and storytelling possible a lot of collaboration.
Aberration.
Between the two groups, but ultimately some level of independence in terms of each being what they can be and doing their jobs best.
Thank you.
Okay. Ben Thank you operator next question please.
Next question will come from Jessica Reif Cohen with Bank of America Securities.
Please go ahead.
Thank you, Matt two questions as well.
Can you comment on the change of management Star does that affect your strategy in India or outside of that the rollout of the star brands its service.
And then secondly, sorry to be negative, but the sports.
It's been decline I.
I mean, there's just so much going on and I Wonder if you could give us your thoughts like.
There was no fans of the stadium, so what changed the viewing experience calendars changed Theres a lot of sports in a short period of time do you have any concerns about.
How this will impact consumer behavior post coverage.
And love your thoughts on kind of the longer term outlook for sports.
Okay, Jessica Thanks, I am going to turn both of those questions over to Bob.
Okay, I'm going to take the last one first in terms of sports right.
Sports ratings, we feel that in context of everything that's happening are actually holding up quite well, but.
But will we be careful not to draw any conclusions about the ultimate health of sports sort of the long term impact that you suggested during this pandemic, we really think that were sort of looking at apples and oranges here I think the best comp would probably have is the NFL, which has been relatively flat our Monday night football viewership is in.
And down 4% relatively modest despite all the headwinds I mean, we've got the risk of seasons not finishing to your point, we don't have fans in the stands we have the risk of gains individually every week being canceled we have election news is competition.
And.
We really can't have our fans doing.
They like to do the best which is watching the communal setting.
They pretty much are watching by themselves. Despite all those headwinds the fact that our Monday night football business is relatively flat in terms of viewership is really I think really encouraging and if you adjust if you will viewership.
Over the last couple of months.
For the amount of available content, you see that they kind of slight together. So we actually don't have any concerns about the long term health of sports obviously, we've got some headwinds as it pertains to short term challenges and hurdles, but we.
We think that all in all in context.
The health of sports is pretty decent given everything.
What is going on.
In terms of India, obviously, we have an executive there.
Today Shankar, who we love it and we wish him well he gave us some indication several months ago that he was thinking of moving on Weve got a really deep bench there.
And we feel that we have.
All kinds of opportunities and a lot of success, so far with Disney plus and we have no reason to believe that Thats success won't continue and even accelerate going forward.
Thank you.
Jessica. Thank you operator next question please.
Next question will come from Doug Mitchelson with Credit Suisse. Please go ahead.
Ahead.
Oh, thanks, so much I'll I got two quick ones and then I mean question. The quick ones are the math on India I think if I have it right based on christine's comment around $5 or 30 cents, you're around 11 million subs, which would be about two and a half million added in the quarter I just wanted to make sure that was in the ballpark and I was looking for an update on the cruise.
These ships that were on order.
The main question is having re up some does the plus distribution deals what changes.
Are you seeing now.
Now there are the uncertain launch phase and the value on both sides is better defined for for you and for the distributor to the economics of those deals change or should we think about.
The cost of that marketing channel is locked in and I I also ask because as you add more and more original content. Your streaming services I would think the benefit starts to shift in favor of the distributors.
As you add more and more valuable services. So that'd be helpful. Thank you.
Okay. So I'll, let Christine sort of quickly address your India.
Your question and then I'll turn over the crews and the Disney plus questions to bump.
Okay, Hi, guys very nice.
The comments that I gave on Sunday.
On the Hotstar deep Disney plus India sub.
Subs, we just don't comment on those economics, so I'm.
Unfortunate.
Finally, we can't give you any more detail on that.
Yes.
And as Dan in terms of cruise ships.
As you know, we just got new guidelines from the Ctcs, they're quite.
Therell, let's say.
And they really entail some really high hurdles in terms of not only testing.
By the potential.
Guest that we post on the ships, but also a process that has to happen in order to certify our first sailings those will necessarily result in delayed beyond what we had hoped in terms of getting our ship.
Ships back in service and making magic.
For our guests I guess, the best news out of all of it is that we now do see some light at the end of the tunnel I think we have an opportunity to create sort of a Disney bubble. If you. One if you would on each one of our cruise ships and demand is very very strong for cruise ships were seeing extremely strong demand in the back half of fiscal.
Year 21, and all of 22 in sorry in terms of.
Bookings that said that then create the demand for the new ships that you asked about and right now we're anticipating delivering our first new shift the wish in summer of 2002 and.
We have our next two ships in 24, and 25 and so after a slight delay of roughly six months on those ships.
We think that we're going to be able to bring them onto a service, we hope and expect that the world will be back to normal by then and anticipate having.
A.
Fine.
Then I am trying to fill up the demand of those ships and we think there is going to be so much have demand. We don't expect to have much issues given the love that our guests have for Disney cruise line in terms of the distribution deals and sort of the changing landscape overtime.
With those we're really pleased with our partnered partnerships to date.
Tommy try to limit them, we know due to many but we use them to strategically pursue.
Growth of our subscriber base and lower subscriber.
Subscriber acquisition cost. So as you know we have one or two of these in each market thats about it but it really does help us sort of provide a base during our growth phase and we've got.
Flexibility over time to either ramp those up or ramp those down as we see fit.
Great. Thank you.
Thanks, Doug Operator next question. Please our next question will come from Jason Bazinet with Citi. Please go ahead.
Just a question for Mr trick I kind of go back to this the reorder that you announced.
Hello.
You know the more content. It seems that you put on the DTC side. The the lower your earnings will be but that at the sub growth will be in the higher the stock price will be and so as those decisions are being made today and next year and the year. After are there are.
Guardrails in place that sort of mean this will be a gradual transition or is it really whatever the right business decision is the right business decision and you'll do it even if it means.
Different near term financials.
In terms of profitability than the street's expecting thank you.
Yes.
Their guard rails are good common sense as it pertains to managing cash.
With our parks business sort of being you know.
Having an anchor on it if you will that we can properly operate our parks business like we'd like to we have to be a little bit more careful.
Today than we.
It has to be in the future, but I'm just suggest that when we talk to everybody on December 10, I think you're going to see that we're going to put a lot of wind in the sales of our Disney plus business and heavily invest in it and so the guard rails are just the only ones that would be the constraints that we face today in terms of cash.
Other than that.
Everything is really.
Full speed forward and of course, we've got our linear networks that we're managing we've made some reductions just this last week and ESPN as we manage the transition from linear to more of a.
Digital experience and a direct to consumer.
Experience and so as we toggle that balance between sort of the legacy old media businesses to the new media businesses will do it aggressively but we will watch it from a cash standpoint in the meantime.
That's very helpful. Thank you.
Jason. Thank you operator next question please.
Next question will.
It's from John O'donnell with RBS. Please go ahead.
Hey, Thanks, maybe just a quick couple of few few follow up to Jason's questions.
Bob in terms of the Kashi at 18 billion on the books.
I guess is can we expect a significant like you said a significant ramp and.
Kind of content spend and can we assume as a result of that that the the progress you guys have made in terms of the DTC losses.
Doesn't mean that those for losses peaked at this point and then can you talk a little bit about content spend as it relates to entertainment program going to Disney plus and and Hulu and star and.
PM plus yeah.
Plus obviously has been out there.
Theres some nice growth there I'm getting up to 10 million subs do you expect to shift more of your portfolio from or simulcast it from linear to DTC platform or should we expect some investments in new rights. Thanks.
Okay, John Thanks for the questions I'm going to let Christine.
And take the first question around cash and then Bob talked a little bit more about programming investment.
Great. Thanks.
Okay.
Hi, John just Christine.
You're right that our cash and cash equivalents are very healthy $18 billion, that's down from 20.
In the prior quarter.
Just to put some context around the reduction we lowered our commercial paper balances by almost $5 billion and we also had some bond maturities over 1 billion that we took care of but.
But we are still generating operating cash and we are.
Testing in our content now we're spending a lot of our productions are back up and running so we're going to manage this but as we ramp up even more additional.
More additional new production, we will be.
Spending more cash on that but we'll follow this up.
And when the peak of investment is anticipated we will update you with that information on December 10th.
And my answers are going to be relatively the same in terms of the programming between our linear in our DTC business first of all our pristine will talk about.
The.
Pardon.
At the at the Investor Conference specifically in terms of you we have our losses peak, which was your direct question.
And though additionally, we will be investing heavily we will talk again about more about this at the Investor Conference, but we are going to continue to ramp up our investment.
Yes in DTC, and we will be heavily tilting the scale from linear networks over to our DTC business as we see that as we said in our opening comments our primary catalyst for growth as a company. So again, we're going to talk a lot more about this on December 10th, but you will see a heavily to have the.
Got it.
Okay. Thank you.
John Thanks for the question operator, we have time for one more question. Thank you and our final question today will come from Michael Morris with Guggenheim. Please go ahead.
Thank you. Good afternoon. Two for me first can you talk about the AD revenue per.
Really subscriber decline in the quarter that you referenced in the release just given the strength that we're seeing in this sort of connected TV marketplace. I was kind of surprised to see that so I'm curious your take on on how that business is going and how we should think about that.
My second question is really a follow up to one of the early ones around sports and.
Sports content.
And I'm curious, how you think about expanding sports content availability to consumers that don't have pay TV package I think at this point, there's 30 or 35 million households in the us.
You just referenced some of the stability and rating so maybe that would imply that people who want sport still take pay TV and so it's not.
You can issue, but I'm curious if the leagues have any increasing urgency to sort of reach those those cord cutters or cord, nevers and and maybe what some of the considerations ARPU, whether its financial impact or whether its rights limitations or things like that thank you.
Okay. Okay.
Okay, Mike So I'm going to let Bob take the.
Your next question and then we'll go to Christine on the Hulu question.
Okay in terms of the sort of the cord cutters and email solutions, both partners I won't speak to what the leaks thoughts are I'll leave that up to them, but I will tell you that we've got a product that we're really excited about and has experienced some rapid growth and absolute plus life.
And it really gives the utility that consumers might normally find from the cable or satellite subscriber and be able to get it over the top directly to their homes and I think this will increasingly act as a solution to those households that have walked away.
From there.
Traditional.
The more traditional cable type.
Subscriptions and potentially slated over to who plus like TV and Thats one of the reasons why we're really bullish about that business on.
On the personal a big fan of it I use it and its really sleek, it's very elegant and it really is a big solution provider.
Really the complete solution I think so we're excited about that in terms of solving a consumer need for those consumers as you mentioned that have or walked away from that particular.
Way of distributing and this is not that.
Hi, my thinking on Hulu.
Overall I would say.
Is that we're seeing very very strong.
Demand for advertising on Hulu in the addressable market.
But the year over year comparisons were negatively impacted on a per sub basis by what we're seeing in the advertising market overall.
In Q3 in Q.
Say for but we're going to talk more about who advertising in more detail at the Investor day. So just hold on until December 10th and hopefully we can answer all your questions then.
Great. Thank you.
Okay, Mike. Thank you and thanks again, everyone for joining us today as Bob and Christine have mentioned.
We are looking forward to sharing a lot more with you at our December 10th Investor Day.
And we'll look forward to seeing a lot of you then.
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.
We're 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.
For.
These 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 quarterly reports on form 10-Q and in our other filings with the Securities and Exchange Commission. This concludes today.
Let's call have a great rest of the day everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.