Q1 2021 Walt Disney Co Earnings Call

February 11, 2021

This conference maybe recorded.

I'd now like to hand, the conference over to your host today low singer Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to the Walt Disney Company's first quarter 2021 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.

Today's call is also being webcast and a transcript will also be posted to our website.

We realized most of you are still joining us today from your homes and we are once again hosting today's call remotely. So joining me from their homes or Bob Chapek, Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.

Following comments from Bob and Christine we'll be happy to take some of your questions. So with that let me turn the call over to Bob to get started.

Thanks, Paul and Hello, everyone, I hope, you're all doing well and staying safe.

Unfortunately, as you know the Covid pandemic continues to present significant hurdles for businesses and communities across the U S and globally and most important it has taken a tragic coal on way too many lives.

Fortunately there have been some encouraging developments, particularly with availability of the vaccine.

And we're pleased to be doing our part by providing space at Disneyland for one of southern California's major vaccine distribution sites to date more than 100000 doses have been administered at our location.

It's hard to believe nearly a year has passed since the start of the pandemic, which continues to negatively impact the operations of our company.

For the first quarter adjusted EPS in the quarter was <unk> 32, a share compared to $1 53, a share last year.

Christine will talk more in depth about our results for the quarter.

During this difficult time, we have made significant changes, while finding new and innovative ways to conduct our businesses.

But at the same time, we have chartered a course for even more deliberate and aggressive DTC push for Disney plus yes.

Yes, Tim plus Hulu and star.

I'm really proud of how well our teams performed in the face of a multitude of ongoing challenges both creatively and.

And across our parks and experiences.

And legacy in DTC distribution platforms.

We have been especially pleased with the success of our direct to consumer business and our recent strategic reorganization has enabled us to accelerate the company's pivot towards a DTC first business model and further grow our streaming services.

Disney plus has exceeded even our highest expectations and just over a year since its launch with $94 9 million subscribers as of the end of the first fiscal quarter.

ESPN, plus and who have also performed well with $12 1 million and $39 4 million subscriptions respectively.

And on February 20, <unk>, we will be launching our new International General Entertainment offering star across Europe, Canada, Australia, New Zealand and Singapore.

Star will offer thousands of hours of movies and TV from the company's multiple studios, including content.

From our acquisition of 20% re Fi along with star branded exclusive originals and local programming tailored to specific markets.

Star will be integrated into Disney plus as a distinct sixth brand tile and will offer easy to use parental controls to manage access to the content available on Star Wars.

We're less than two weeks away from launch and we're seeing tremendous excitement amongst consumers.

As you saw during our Investor day presentation, we've got an amazing robust pipeline of original content and development and production for our full portfolio of streaming services. We have some of the best creative teams in the business and that's reflected in the tremendous appeal of our unparalleled.

<unk>.

And just the last two months Disney plus has delivered a string of hit programs, including Marvel's incredibly original one division Steve.

Season, two of the man Delorean, which ended with the surprise reveal that fan favorite Boba Fett will have his own Disney plus series starting this December.

And Pixar artistic triumph soul, which debuted on the service and in theaters on Christmas day to great acclaim and has since taken in nearly $100 million at the global box office.

The wealth of IP from our unrivaled collection of brands and franchises provides us with an incredible breadth and depth of storylines and characters to mine for Disney plus and our other streaming services, we have the ability to interconnect these storylines and characters in unprecedented ways as we saw with Amanda.

Lauren and one division tying into the broader Star Wars and Marvel franchises.

We're excited to continue exploring the endless possibilities that this unique ecosystem provides.

The fan response was overwhelming when we announced last week that Ryan Krueger, who is hard at work on Black Panther II will be developing a black Panther inspired series based in the kingdom of conduct for Disney plus.

We're also thrilled to be expanding the scope and reach of ESPN the undefeated by creating a destination on Hulu devoted to black entertainment and culture Enel.

Another example of our continuing commitment and investment in diversity and inclusion.

And we can't wait for the award winning and critically acclaimed film no man's land to be released in theaters and on Hulu on February 19.

And on March 5th Disney Animation Studios riot in the last Dragon and artistically beautiful film celebrating female empowerment will arrive in theaters and on Disney plus by a premier access.

As we've said our goal is to increasingly put the consumer in charge and let them decide when and how they want to enjoy a one of a kind entertainment offerings.

Turning to other parts of the company, we've made a number of changes in how we manage and operate our theme parks and consumer products businesses in light of the disruption caused by the pandemic and we believe these and other adjustments. We will continue to make will best position us to operate more effectively now and.

In a post COVID-19 environment.

Where we have been able to reopen our theme parks with limited capacity guest have consistently demonstrated a willingness and a desire to visit which we believe is a testament to the fact that they feel confident in the health and safety protocols, we've put in place.

Average daily attendance at Walt Disney World grew significantly from Q4 into Q1.

Helped in part by the increased capacity, we've been able to achieve as a result of our successful protocols.

It's clear that people want to reconnect with loved ones and spend time together doing things aimed joy and given the demand. We're seeing now we're confident that will only grow once the pandemic is behind us.

Even under difficult circumstances, we have been able to continue expanding our parks at Walt Disney World Resort, we're hard at work on two brand new attractions at Epcot remedies Ratatouille adventure and the highly anticipated Marvel themed rollercoaster Guardians of the Galaxy Cosmic <unk> one.

Work is also well underway on the all new spectacular nighttime show harmonious. This is all part of a much larger re imagining of aircraft to make it more Disney.

More family friendly more timely and more magical.

And I am, especially excited about the progress Thats been made on the New Star Wars Galactic Star Cruiser Hotel at Walt Disney World people are going to be blown away by the experience. It is truly unlike anything we've done before.

At Disneyland resort, the exciting new Marvel themed land Avengers campus is currently scheduled to open later this year at Disney, California Adventure.

And crews are hard at work on the highly anticipated state of the art attraction, Mickey and Minnie Runaway railway coming to Disneyland in 2023.

We're also moving forward on a number of new projects at our international parks.

At Shanghai Disney Land, where continues on the first ever zootopia themed land.

This fully immersive area will seamlessly blend Disney storytelling with advanced technologies, creating a one of a kind experience for our guests.

Throughout this challenging period, we have consistently demonstrated our ability to deliver world class programming on all of our platforms digital and linear.

On ABC, we continue to have the number one returning drama in the key demo of adults 18 to 49 with Grey's anatomy.

As well as the top new drama of the fall fixed Scott both grades and Big Sky also hold the top broadcast drama spots on Hulu.

Also of note Espn's first ever NFL wildcard Mega cap featured six networks, including ABC, ESPN, plus and ESPN deport them.

It was the most extensive multichannel offering to date for an NFL playoff game.

And the following day the team at ESPN pulled off an equally impressive feat with a mega cap of the college football playoff National Championship game with 14 different presentations on multiple platforms.

During extraordinarily difficult year are amazing local and national ABC news teams have been doing an absolutely outstanding job.

And good morning America, and World News Tonight, with David year continue to hold the top spot as the number one morning show and evening newscast.

While these remain challenging times, we are more confident than ever that we will emerge from this crisis in a strong position. We're proud of all that we've accomplished especially as it relates to our top priority our DTC business and we believe that the strategic actions, we're taking to transform our company.

<unk> will enable us to enhance the consumer and guest experience grow and expand our businesses and increase shareholder value.

With that I'll now turn it over to Christine.

Thanks, Bob and good afternoon, everyone excluding.

Excluding certain items diluted earnings per share for the fiscal first quarter were <unk> 32.

In spite of the challenging circumstances, we are faced with COVID-19 over the past year. These results reflect the strength of our brands and experiences as well as our ongoing commitment to operate our businesses efficiently.

This is the first quarter in which we are reporting under our new organizational structure. We filed an 8-K last week with a summary recast segment financial information for fiscal 2020.

Today's discussion of our financial results will be organized by two segments.

Disney Media and entertainment distribution for <unk> and.

And Disney parks experiences and products for Deepak.

I'll start with our newest segment, the med, where operating income increased modestly in the first quarter versus the prior year.

Our financial reporting structure for <unk> includes three lines of business.

Linear networks direct to consumer and content sales licensing and other.

Operating income at linear networks, which now includes both domestic and international channels decreased versus the prior year quarter due to declines both domestically and internationally.

At our domestic channels the decline in operating income was due to lower results at our cable business, partially offset by an increase in our broadcasting business.

The decrease of cable was largely driven by ESPN where results in the first quarter were significantly impacted by higher <unk> costs.

This was largely due to timing of college football playoff games relative to our fiscal periods as well as higher NBA programming costs.

The first quarter included six CSP Bowl games compared to three in the prior year quarter.

For NBA finals games were played in the first quarter due to COVID-19 related timing shifts, whereas these gains would have typically occurred in the prior fiscal year.

ESPN domestic advertising revenue decreased 4% in the quarter due to lower average viewership and the cancellation of certain college sporting events, partially offset by an increase in rates.

AD revenue at ESPN is currently pacing down quarter to date due in part to the timing of key events.

At broadcasting higher political advertising revenue at our owned TV stations drove an increase in operating results versus the prior year, partially offset by a decrease at the ABC television network.

Total domestic affiliate revenue increased 3% in the quarter.

This was driven by a benefit of eight points of growth from higher rates offset by a five point decline due to a decrease in subscribers.

At our international channels lower results in the quarter were driven by higher programming and production costs and lower affiliate revenue, partially offset by advertising revenue growth and a reduction in non programming costs.

Higher programming costs and higher advertising revenue reflected a shift in the timing of Indian Premier League cricket matches due to Covid and the decrease in affiliate revenue was primarily due to channel closures.

However, our international channels results. This past quarter were better than the guidance. We gave in our last earnings call, primarily due to stronger than expected advertising revenue COVID-19 related timing shifts of non cricket programming and sports rights costs and expense savings.

Moving on to direct to consumer.

Improved results at all three of our streaming services drove an improvement in direct to consumer operating results of nearly $650 million versus the prior year.

Last quarter, we guided to direct to consumer operating income declining by $100 million versus the prior year under our former segment structure.

Our reported results are $750 million higher than that guidance.

While some of the outperformance reflects better than expected results from Hulu and Disney plus the majority of the variance relates to the elimination of intersegment pricing markups under our new financial reporting structure.

At Hulu the improvement in the first quarter versus the prior year was due to both subscriber and advertising revenue growth.

Partially offset by higher programming and production costs.

Hulu ended the first quarter with $39 4 million paid subscribers, including 4 million, who will live digital mvpds subscribers.

Turning to Disney plus a lower loss in the first quarter compared to the prior year was driven by subscriber growth, partially offset by higher costs due to the launch and expansion of Disney plus.

With $94 9 million paid subscribers at the end of Q1 Disney Pluses Global net additions were $21 2 million versus Q4.

Disney plus Hot Star subscriber additions continued their strong growth trend with Disney plus Hot star subscribers, making up approximately 30% of our global subscriber base.

We also saw strong additions to our subscriber base from our November launch in Latin America.

Disney Pluses overall <unk> this quarter was $4 three.

However, excluding Disney plus Hot Star It was $5 37.

Higher results at ESPN, plus we're driven by subscriber growth, partially offset by higher sports programming costs driven by soccer rights.

P M plus ended the quarter with $12 1 million paid subscribers.

Given that we are past the launch here of Disney plus we no longer intend to update our DTC subscriber numbers as of our earnings dates, but we will continue to provide you with quarter end subs.

We may choose to make additional disclosures when we hit certain milestones.

Content sales licensing and other operating income at <unk> decreased in the first quarter versus the prior year due to lower theatrical television spot and home entertainment results all consistent with our prior guidance.

The decrease in theatrical results reflect no significant worldwide releases in the quarter.

Compared to frozen two in the prior year quarter.

Lower TV <unk> distribution results were the result of a shift from licensing to third parties to exhibiting our content on our DTC services.

A decrease in home entertainment results was driven by the absence of significant title releases in the quarter compared to the performance of toy story, four the lion, King and Aladdin and the prior year quarter.

I'll now turn to our parks experiences and products segment.

We continue to see significant impacts from the COVID-19 pandemic across many of our businesses.

While some operations have resumed our parks experiences and products segment has undoubtedly in hard hit by Covid.

In the first fiscal quarter, we estimate the pandemic adversely impacted <unk> operating income by approximately $2 6 billion.

Due to revenues lost as a result of closures and reduced operating capacities.

Operating income at parks experiences and products declined significantly versus the prior year to an operating loss of $119 million.

As a reminder, Walt Disney World Resort, and Shanghai Disney Resort, we're open for all of the first quarter.

Disneyland resort with closed and our cruise business was suspended for the full quarter.

Disneyland Paris with open until the end of October or for about a third of the quarter and Hong Kong Disneyland was open until the beginning of December or for about two thirds of the quarter.

Our parks and resorts that were opened during the quarter all operated at significantly reduced capacities.

Yet all achieved a net incremental positive contribution for the periods during which they were open meaning that revenue exceeded the variable costs associated with opening.

At Walt Disney World as Bob mentioned earlier average daily attendance grew significantly from Q4 into Q1.

Benefiting from typical seasonality factors as well as solid underlying demand trends.

At the same time, our operations team found innovative ways to responsibly increase capacity, while still maintaining rigorous COVID-19 protocols.

Per caps were also up double digit year over year.

We continue to be pleased with the rate of reservation bookings, we are seeing in the current quarter and consumer sentiment around visiting our domestic theme parks over a longer period of time remains strong.

And our consumer products business, we saw an increase in operating income in the first quarter driven by an increase in games licensing revenue, which reflects the successful release of Marvel's latest licensed Spider Man game.

As we look ahead. Despite continued limited visibility due to the challenges of the pandemic, we would like to give you some context around certain items that may impact, our second quarter or full year results.

First at our domestic linear networks, we expect ESPN will benefit in the second quarter from the timing of college football and other sporting events with lower rights cards, being partially offset by lower advertising revenue.

In Q2, we had only one CFP game, which was the National Championship game.

This compares to four games in the prior year, three CFP Bowl games and the National Championship game.

Our broadcasting business will be negatively impacted in the second quarter due to lower political advertising versus the prior year. In addition to the shift of the Academy awards to the third quarter.

We expect direct to consumer operating results in the second quarter to improve modestly versus the prior year quarter as improvements at Hulu and ESPN plus will be partially offset by increased content investment to support the expansion of Disney plus.

We expect that Walt Disney World attendance in the second quarter will be impacted by typical seasonality headwinds. In addition to continued COVID-19 related headwinds and capacity constraints.

Our current expectation is that Disney land and Disneyland Paris will be close to the entirety of the second quarter, but we are hopeful we will be able to reopen Hong Kong Disneyland during the quarter.

We have refined our capital spending expectations and we now expect capex in fiscal year 2021 to be roughly comparable to fiscal 2020 spending.

Compared to 2020, we still expect to see increased investment at <unk> and corporate and reduced spending at the tap.

And with that I'll now hand, the call over to Lowell and we'll be happy to take your questions.

Okay Christine Thank you Andy.

We are ready to transition to the Q&A and as we do that let me note that since we are once again not physically together. This afternoon I will do my best to moderate the call.

Direct your questions to the appropriate executives so with that Liz we are ready for the first question.

Our first question comes from Ben Swinburne with Morgan Stanley.

Thanks, Good afternoon.

Bob can you I know visibility is limited, but can you tell us how you think about the parks through the rest of this year in particular.

Steve mentioned strong underlying demand, but do you expect to be able to increase capacity limits and fulfill that demand.

And as you do are there things that you've done on the technology or cost side that could help us think about the ramp back to breakeven.

And then I was just wondering Kristine is there any way you could help us think about the sports rights.

In fiscal 'twenty, one versus fiscal 'twenty theres been so much movement in.

A number of games between the two years and obviously with your big dollars for the company I'm. Just wondering if there's any way you can help us think about that maybe on an annual basis. Thank.

Thank you Bob.

Okay, Ben Thank you.

Bob why don't we check first question about Park and then we'll go to Christine.

Okay.

Okay in terms of the outlook for the parks for the rest of the year and the capacity its really going to be deterred.

Determined by the rate of vaccination of the public that towards seems like the biggest lever that we can have in order to either take the parks that are currently under limited capacity and increase it or open up parks that are currently closed. So that is that is sort of the gating factor if.

You will as Kristina suggested.

We have ample demand for our parks.

Despite everything that's happening with the pandemic I think we've made.

A pretty big impression on our consumer base and prospective guests in terms of the.

Safety measures that we've undertaken in our parks to give assurances to people that.

They should come and bring their families.

We're very very pleased with what we're seeing in terms of future bookings.

In terms of the cost savings and the technical side of things.

Not only has our.

Our industrial engineering team.

At Walt Disney World and some of our parks like January across the world figured out ways to increase capacity with the same.

Safety measures that we've had in place which has enabled us to increase our.

Or if you will our attendance, but we have been able to substantially manage our cost side.

At the same time.

Two rifles, if you will our not only our fixed cost base, but also our variable cost base to match, what's happening and I think that's evidenced by what Christine said that all of our parks regardless of what conditions are operating under assuming they are operating are in positive net contribution side I would also add.

You didn't mention this but I think it's important to add that given those per caps that Christine referenced in terms of the double digit increase in per caps. This is sort of the ultimate situation, where our demand is exceeded.

Supply we've had that been fortunate enough to have that situations over the last couple of years and we've learned how to yield this business and I think this is the ultimate situations, where we've got supply greater than demand. So not only are working on the cost side, but we're also working on the revenue side and I think youll see some of those results.

At play at Walt Disney World.

Got it.

Okay.

Now to address to.

To address sports rights and the shifting between fiscal years because of what happened with not only cancellations, but delays.

Some of the sporting events, you will see some doubling up of some sports rights in this fiscal year things like Youll have two NBA finals, assuming the season for 'twenty. One continues as we expect you'll also have things like two masters two seasons of IPL games in this.

Ill assumes that in fiscal 'twenty, one nothing is drastically shifted out.

But you can expect the sports rights overall to be up because of the doubling and the shifting into fiscal 'twenty one.

And thats on linear when we look at our ESPN plus rights costs. Those are up also because we acquired some additional rights.

Most significantly in soccer.

That we announced earlier.

Last year.

Thank you both.

Okay. Ben Thanks for the question Operator next question. Please.

Next question comes from Michael Nathanson with Moffett Nathanson.

Thanks, I have two one.

One is on DTC and the learnings from from sole being released directly versus what you experienced in Milan.

Any takeaways, there and maybe what's the right model for you and then secondly on Hot Star.

How important has cricket bend to the growth and the adoption there and is there a risk of churn and Wendy Ipl's season comes to an end.

Okay. So Bob do you want to take the sole question Kristina.

Kristina you might want to take the question.

Okay in terms of the DTC business and so as you remember we.

On Christmas day.

We felt that was a really nice thing to do for our consumer base.

And our subscriber base.

Given the holiday and given the fact that we have talked consistently about remaining flexible in terms of how we're going to go ahead and put our titles out.

To the marketplace, we were absolutely thrilled by what that brought to our business in terms of both acquisition and retention.

So I would say it was it was a big it was a big hit with our with our subscriber base in terms of Mulan.

The best thing I can say about Mulan is that it was successful to the extent that we're also using that strategy on Ryan so the individual decisions as we've talked about in the future.

Bill will take them theatrically and some films, we will take them theatrically plus Disney Premier access as this was the case with <unk> and was the case with Milan and in some cases, we'll take a direct to service, it's going to be dependent though on what our slate of titles are and whether we think that we need to put something on the service for those particular.

The guest or whether this is something that we could use as another data point in our exploration of Premier access day and date with theatrical so it's really about flexibility and we're going to steer our decision making over time, given what information that we get from our guests and our subscriber base on what they prefer.

Okay, and then I guess follow up for a quick second on Black widow, which is still I think it may real estate anything you want to share on potential changes to that to that real estate.

Right, So I'm going to go back to the word flexibility because we had made a reference at the Investor Conference that Black widow was going to <unk> and we are still intending it to be <unk>, but again, we are going to be watching very carefully.

The reopening of theaters and the consumer sentiment in terms of desire to go back to theaters to see whether that strategy needs to be revisited, but as of now the strategy is to continue on with the theatrical release and we'll be watching very very carefully.

Okay. Thanks.

Okay, and I'm going to address the question regarding churn on Disney plus Hot Star.

With the IPO season, finishing up so just to put it in context cricket is a very important part of a diversified programming strategy at at Disney plus Hot start.

It also has a lot of other local content that consumers.

Like to view, so we did see a bump up when the IPO season started.

But we've also made it economical for a consumer to sign up for a one year subscription versus going month to month.

So those are some of the things that we're looking at and utilizing to mitigate the churn that one could expect from IPL, but it's a more diversified offering.

In terms of programming than just cricket.

Okay. Thank you.

All right Michael Thank you operator next question please.

Our next question comes from Alexia <unk> with Jpmorgan.

Thank you just sort of following up on those comments on Disney Paul can you. Please discuss maybe in general how you are thinking about local partnerships for content versus more traditional Disney content I believe in Indonesia, you Lee.

And a lot more into local content partnerships and you saw outsized growth in that launch there.

I'm curious sort of maybe some broader commentary about about that mix going forward and then my second question is just sort of following up on your comments on churn.

Not necessarily looking obviously part number of chart number on churn, but maybe just some color about China in general for Disney plus and how we should think about it in front of the upcoming price increase.

Okay. Thanks, So Bob George talk a little bit about local partnership and then Christine you can talk a little bit about churn.

Okay. So in terms of the local partnerships first one let's talk about I'll talk about the content side of it because there is a content site element of it as well, there's really two things that gate our amount of content, that's local in any given market, including Indonesia and in some cases, there are local requirements for local content is.

Percentage of the total so that is one factor that plays into it and then second one is what we think we need from a portfolio standpoint of overall content.

As you might suspect we're pretty aggressively ramping up all of our production for all of our local territories in terms of the partnerships in Indonesia, we're partnering with telecom cell and we have a lot of data plan and promotional bundling that we're doing with them, which not only is sort of keeping the rates.

At a place that's respectable in the marketplace given the overall.

The economy, there and what the market will bear, but also giving us exposure, possibly from a marketing standpoint promotional standpoint.

Two particular audience segments that we may not otherwise be able to get it so and in terms of overall churn.

Are you going to take that one Christy yes.

This downward.

So in general.

We are very pleased with what we've seen so far on the level of churn.

And as our product offering matures and we put more content into the service.

And our subscriber subscriber base becomes more tenured we expect to see our churn rates continue to decline.

So in regard to the specific turn churn related to the anniversary of the Verizon launch promotion from last November 2020, we're really happy with the conversion numbers that we that.

We have seen there going from.

The promotion to become paid subscribers. We also have that price increase.

Consumers know about and they are expecting but we're very comfortable with the price value relationship that we're offering. So we think that the $1 increase will be well received and we believe that our current and future pricing offers attract attractive value to consumers. So we feel really good about where we are but.

We always want to improve.

Thank you.

Alexia. Thank you operator next question please.

Our next question comes from John Hodulik with UBS.

Okay, great. Thanks.

Maybe first on the parks with given the cost reductions and the efficiencies can we expect longer term margins in that segment to be higher once we get back to full capacity and then maybe a quick one on the on the Capex guidance. It looks like I think you guys revised guidance for Capex. It was I think about a half a billion dollars higher on a year over year basis.

Can you just run through that.

Items with that keep it flat on a year over year basis.

Hey, John George Thanks for those questions, Bob John Sorry, Hulu.

Parks and then Christine you can talk a little bit about.

Yes.

I would characterize this last year has been not only a year of challenge, but also a year of learning in terms of what we can do in terms of sustained margin growth in our parks when I say that because.

There's nothing like a pandemic to challenge the status quo and make you be fairly introspective about a lot of things.

That may be taken as fairly dogmatic I think you've all seen several new announcements about things that we've done recently that may have been heresy.

Prior to the pandemic like recasting of our annual pass program at Disneyland and reconsidering.

The overwhelming demand we have relative to supply everything we do the first ones. We look at is to exceed guest expectations and it's very tough when Youre Park has more demand than supply we have to put limits on it well as you know we have a wide variety of margins depending on the <unk>.

<unk>, the guests and how they visit and when they visit.

So with the lens towards maximizing the guest experience. We are now able to essentially reset many pieces of our business both on the cost and revenue side of the business in order to say, if we had a blank piece of paper how would we set up our parks business and B.

A little bit more aggressive than we typically might be able will be without the impetus of.

Unfortunately, a year long closure. So we've had a lot of time to think particularly at Disneyland about what could be and I think you're about to see some of those strategies be born.

Okay.

<unk> I talk about Capex I, just wanted to say from my perspective, the parks management team has done an outstanding job addressing cost structure.

Of course variable costs will come back in as we ramp up operations, but they've really looked at the <unk>.

They're doing business and it's really been quite impressive. So I just wanted to add that to our bobs already said.

As it relates to Capex last less earnings call. We had said that we expected capex to be up from last year I think the number was $550 million, but now we're expecting it to be relatively flat. What we have here is a couple of dynamics.

We will have increased spending.

At <unk> in corporate but we're going to have reduced spending at parks.

Some of the demerger, the spending is going to be on things like technology.

Infrastructure investments related to the launch of Star.

Andy Pap and our parks business.

Obviously, the the reason that the Capex is slowing is because some of the parks are closed and we've chosen to slow spending there.

Got it thank you David.

John Thanks for the questions. Operator next question. Please.

Our next question comes from Jessica Reif, Ehrlich with Bank of America Securities.

Thank you.

Given the viewership of the Super Bowl.

This year on CBS was down.

Charlie Lowell the last 10 years and streaming was up a lot can you talk about how you think about that in.

In light of ESPN, plus like how does that factor into your conversations with the NFL and then maybe kind of related but how much it from factors sports betting in these conversations and in general how will you leverage both ESPN and ABC to capitalize on the growing legalization and adopt.

Sports betting and then just a second park for one second can you talk a bit how attendance relates to capacity I mean, you only add capacity a few days here.

So is there any way you can frame that relationship. If you will have 35% capacity is that.

I don't know 70% of attendance.

Okay.

So I'm going to let Bob.

Bob dispose question and maybe this game will start with the question Bob I'll turn it over to you. Okay. So I'll take the sports.

ESPN has always.

Our consideration whenever we look at Reits.

Going forward.

In terms of the Super Bowl being down.

As we're going into Reits conversations with them. It's obviously something we're considering but more important than any one Super Bowl, where we'll look at we're looking at the long term trends.

Of sports viewership, the Mvpds universe in our own prospects of a.

Potentially a more true ESPN DTC service. So there's a lot of moving parts and a lot of elements in that mix, whether it's all taking into account the trends that we're seeing in the marketplace. What I will say is that we've had a long relationship with the NFL.

And.

If we have a deal if there is a deal that will be accretive to shareholder value. We will certainly entertain that and look at that but our first quarter will be whether it makes sense for our shareholders standpoint going forward in terms of sports betting as you probably know we already have some programming.

SPN.

Around the subject of sports betting it particularly is attractive to the younger very passionate sports audience that we find so it's an important piece of what we're doing we've got released.

Our relationships with <unk> and Caesars, we've got sports links with our sports betting lease with both of those are not branded Disney or ESPN, obviously with branded through their own offerings.

Got a studio in.

Las Vegas with Caesars that we're working on.

We've also got a variety of different things that we're entertaining for the future. So sports betting we do realize the value and that we've obviously got some buffers in terms of our own brand and what we think our own elasticity is in terms of us participating in such endeavors.

We're we're highly interested in taking the relationships that we have with both parties and taking them to the next level if that makes sense.

Okay Jessica.

I'll address your question about capacity at the parks.

Youre absolutely right there are days, especially holiday periods, where we have to.

Shut our parks for additional entries.

Those those tend to be days that the park fills up quickly and we just can't accommodate more people, but that being said.

We are currently operating at 35%.

Of that full capacity and the teams in the park now, especially at Walt Disney World have really figured out a way to be as efficient as possible in operating the part that allows us to get up to that 35% and still maintain all of the protocols for.

Social distancing.

For Covid.

I think you remember when we started opening we started at a level less than 35%, but it was the as Bob has already mentioned industrial engineering that we utilize and just moving people around.

The other thing I'd say is when you think about the parks, it's a combination of.

Attendance and per caps when youre looking at at revenue.

As we as I said in my comments and I think Bob alluded to it.

On the Q&A that we've had really nice growth in per caps with double digits not only on a linked quarter basis from from fourth quarter to first quarter, but also double digits year over year. So when you think about per caps in the yield management, we want to have people have a great Tom.

When they are in our parks and when they have a good time they tend to spend more money. So this is something that we're refining as we go along.

That's great. Thank you.

Jessica Thanks for the questions. Operator next question. Please.

Next question comes from Doug Mitchelson with credit Suisse.

Paul Thanks, so much good afternoon. So.

Back to streaming I think that your first Disney parks. The analyst day, you indicated that you'd be launch to the full world by about the end of this fiscal year or calendar year I think it was fiscal year. So I'm just curious if the timing for rest of world launches for Disney plus and Disney plus Hot Star is on track to be completed over the next few quarters.

And I'm also interested if you have any comments on engagement.

Disney plus and I'm thinking just how customers that have been on the service a little bit longer.

Do they still use the services much as when I first joined <unk> in one division in terms of being Washington, as many homes as you hoped.

And I guess, the third piece of that would be any any comments on cadence around contemplate going forward I know at the analyst day, you talked about getting to 100 shows a year should we think about your content continuing to ramp aggressively.

Coming months or coming quarters, how should we think about that thank you.

So Bob why don't you take fees.

Streaming rollout question and then Christine maybe you can take the engagement question and Bob will go back to you on.

Cadence of content cycle.

Okay. Yes, we are still on schedule, where we will get to the great majority of our rollout markets by the end of the year.

It's all green lights in terms of our launch not only in terms of preparation of the service itself and being able to.

Handle it from a delivery standpoint, but also from our content curation standpoint.

Both creation and acquisition again on the local content when we need that.

As you know we've got quite a.

Quite a slew of new content coming and great library content, which really rounds out our offering and will add to that our local offerings in order to make it a full robust.

Offered for each particular market given the idiosyncrasies of what each market requires so it's it's all as planned.

So Doug on engagement.

As we said at the Investor Day.

With Disney plus originals, along with the theatrical releases and the library titles will be adding something new to the service every week.

And in General I would say we are very pleased with the engagement overall, especially when we.

Put something like one division on the service.

So once again these anytime we put a new piece of content on the engagement for people, who know what the schedule of releases, it's quite encouraging. So we believe we're going to reach that cadence of of getting content on the service every week within the next few years and we've also set.

That target for 100, plus new titles per year, and that's across Disney Animation Disney Live action Pixar Marvel Star Wars, Nat Geo and of course, we'll continue to add more.

Two are <unk>.

Our library as we go through time as well.

Great. Thank you very much.

Okay. Thanks Christine.

Operator next question please.

Our next question comes from Jason Bazinet with Citi.

Hi, Thanks, I just have a question on parks.

The vaccine came out last year, the buy side has the soft expectation that any one that saw revenue downturn because of Covid, we will get back to 2019 revenues by 2022.

Once we have a herd immunity and the vaccines distributed and every once in a while I read some articles that suggests that social distancing will still have to be in place.

<unk> heard it maybe just rounding people will still have to wear masks.

So do you guys have any counselor insight in terms of how youre thinking about sort.

Sort of how the parks will operate by the time, we get to 2022 and any reason.

Not to believe that we won't try to get back to 19 revenue assuming that the economy is fine and all of that thanks.

Thanks, Jason Im going to levels, where the Paul Yes, I won't specifically comment on whether we anticipate getting to 19 revenues by 2022, but I will tell you what our expectations are in terms of the state of the world.

By then we have no doubt when we reopen up in parks that were closed or increase the capacity that we will have some level of social distancing and mask wearing.

For the remainder of this year, that's our expectation, but I believe that Dr. <unk> said earlier today that he hopes that theres vaccines for everyone, who wants them by April this year, if that happens that is a game changer and that could accelerate our expectations.

Give people the confidence that they need to come back to the parks will there be some overlap until we know that we've hit curve immunity sure. There will but do we also believe that will be in the same state a six foot social distancing and mask wearing in 'twenty two absolutely not.

Thank you.

Thanks, Jason Operator next question please.

Our next question comes from Brett Feldman with Goldman Sachs.

Thanks for taking the question. So if I go back to the December Analyst Day, you had outlined an expectation that Disney plus would see peak operating losses in this fiscal year and chief profitability by fiscal year 'twenty four when we look at the DTC P&L in the quarter, you just reported and your outlook. It seems like you're trending much better than that for this first.

Full year, so I'm curious do we need to revisit any of this guidance either because of accounting changes related to the recent mutation or maybe just underlying operating trends that are perhaps better than you had expected. Thank you.

Brent. Thank you for the question I'm going to turn that one over to Christine.

Okay. Thanks, Brett.

Youre, absolutely right peak losses, we expect in this fiscal year.

We said at our Investor day, which wasn't too long ago that we expect it to reach profitability in fiscal 2024, we're not going to change that at this point. Although we are very pleased with the results that we just announced but.

But we are also.

Given the value of growing our sub base, we are continuing.

Continuing to invest in high quality content. We believe that content is the is the single biggest driver to not only acquiring subs, but retaining them.

We're also going to have some other cost drivers that we just have to factor into our our timing for profitability and that includes marketing technology customer service and just other expenses of running a new business. So we're sticking to that 2020 for fiscal 2020 for profitability, but once again.

We're very pleased with where we are today.

If you wouldn't mind, if I guess, that's a quick follow up question you've gotten the question about whether you see any churn risk around the rate adjustments that are going to be coming this year.

Are you expecting maybe to spend a bit more around engagement or awareness or marketing or anything just to make sure that as you transition out of the launch phase and promotional periods phases and into your first ever rate adjustment.

That your customer base feels connected with you and that you don't experience that speed bump.

We believe that keeping keeping our subscribers informed about what's on the service.

Is extremely important so the awareness that will create through targeted marketing and marketing of the brand.

Well basically.

Mitigate what we believe is a very reasonable price increase given the amount of content and the value to subscribers.

Yes, Christine if I can just jumping in here as well, we believe that we've got a great price value relationship I mean think about it from Star Wars franchise, we move from <unk> to two boba Fett and later on this year to mandatory in three and on a Marvel standpoint, we go from one division to silicon in the <unk>.

Winter soldier and to Loki so.

I think the best installation, we've got to keep the price value relationship very high and there is no better way to do it then powerhouse franchises cranking out regular new releases on a monthly basis.

Thank you.

Hey, Brent Thanks, operator, with Tom for one more question.

This question comes from the line of Michael Morris with Guggenheim.

Thank you guys good afternoon.

A couple of questions on streaming first I want to ask you about Hulu the <unk> service on Hulu.

Hoping you can maybe share a little bit about the dynamic that's going on there.

What the mix of sort of.

AD supported versus.

<unk> AD free subscriber base looks like and where there are a number of these now free AD supported streaming services that have been growing and being more aggressively populated I'm curious how you see that competitive dynamic playing out.

And I wanted to ask one question about sports Bob you mentioned that the Mega cast approached a couple of your your big events and I am curious as you look at your ability to provide that but what's the economic benefit to you do you is this primarily about putting it in front of more people and therefore being able to monetize.

Better or is there an element of your.

80 to deliver I get cast when you were negotiating for.

Content rights sports rights with the leagues or teams.

The owners there.

That you have a somewhat stronger negotiating position relative to your peers. Thank you.

Okay, Mike it's good to hear from you on what Chris scheme.

<unk>.

Hulu as final question, and then I'll ask Bob to address the Mega accounts.

Hi, Mike So on Hulu S Fahd.

When you look at the relative mix of AD supported versus AD free.

More of the.

Lee.

Subscribers.

Or in the AD.

Or in the AD free AD supported.

And that that is where we have seen a really nice growth of our.

Addressable advertising so that we have we're very comfortable and we actually we like the mix that we have but it is more.

<unk> supported.

So we enjoy that that relative increase of advertising.

It's pretty much been.

The track record that that Hulu has of having that relationship of AD supported versus AD free has been relatively consistent over their 10 year tenure.

Yeah and on a multi cast question I think it's both both elements I think there is a consumer benefit to the fact that nobody else can do what ESPN does in terms of the multi cast and I think we've proven that in several different ways.

Over the last few months with big football events the broadcast.

But I think there's also an element that that then.

Is obvious not only to us an obvious to our consumers, but obvious to our prospective partners as we go into negotiations with new deals.

I think there's probably a mentality that well the more times, we divide this up the better off we're going to be.

From the perspective rights owners and I think what we're doing is throwing a wrench into that thinking and suggesting that maybe.

Taking a consumer first approach and saying boy consumer choice is really a good thing for everybody. Let's go ahead and maximize the number of touch points, we have not only do we get a benefit from our subscriber base for those folks that have ESPN, but I think it's also very apparent to the leasehold the right.

Great. Thank you both.

Michael Thank you 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 and beliefs or business process.

Specs and other statements that are not historical in nature may.

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 <unk>.

This 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 can change 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. Thanks again.

Joining us today and I wish everyone a very good afternoon bye bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Yes.

Goodbye.

Okay.

Yes.

Okay.

Yes.

Tom.

Okay.

[music].

Yes.

Okay.

[music].

Tom.

John.

[music].

Yes.

Paul.

Okay.

Paul.

Okay.

John.

Yes.

Sure.

Paul.

Tom.

Okay.

Right.

Paul.

John.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Walt Disney Company's first quarter 2021 financial results Conference call.

At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.

After the presentation, there will be a question and answer session.

To ask a question during the session you will need to press Star then one.

Please be advised that today's conference maybe recorded.

I'd now like to hand, the conference over to your host today low singer Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to the Walt Disney Company's first quarter 2021 earnings call.

Our press release was issued about 25 minutes ago and is available on our website at www Dot Disney Dotcom forward slash investors.

Today's call is also being webcast and a transcript will also be posted to our website.

We realized most of you are still joining us today from your homes and we are once again hosting today's call remotely. So joining me from their homes are up shape at Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.

Following comments from Bob and Christine we'll be happy to take some of your questions. So with that let me turn the call over to Bob to get started.

Thanks, Paul and Hello, everyone, I hope, you're all doing well and staying safe.

Fortunately there have been some encouraging developments, particularly with availability of the vaccine.

We're pleased to be doing our part by providing space at Disneyland for one is southern California major vaccine distribution sense.

To date more than 100000 doses have been administered at our location.

It's hard to believe nearly a year has passed since the start of the pandemic, which continues to negatively impact the operations of our company.

For the first quarter adjusted EPS in the quarter was 32, a share compared to $1 53, a share last year.

Christine will talk more in depth about our results for the quarter.

During this difficult time, we have made significant changes, while finding new and innovative ways to conduct our businesses.

But at the same time, we have charted a course for even more deliberate and aggressive DTC push for Disney plus yes.

Yes, Tim plus Hulu and star.

I'm really proud of how well our team has performed in the face of a multitude of ongoing challenges both creatively and.

And across our parks and experiences.

And legacy in DTC distribution platforms.

We have been especially pleased with the success of our direct to consumer business and our recent strategic reorganization has enabled us to accelerate the company's pivot towards a DTC <unk> business model and further grow our streaming services.

Disney plus has exceeded even our highest expectations and just over a year since its launch with $94 9 million subscribers as of the end of the first fiscal quarter.

<unk> P M plus and who have also performed well with $12 1 million and $39 4 million subscriptions respectively.

And on February 23rd we will be launching our new International General Entertainment offerings Star across Europe, Canada, Australia, New Zealand and Singapore.

Star will offer thousands of hours of movies and TV from the company's multiple studios, including content.

From our acquisition of 20, <unk> century, Fox, along with Star branded exclusive originals and local programming tailored to specific markets.

Tom will be integrated into Disney plus has a distinct sixth brand tile and will offer easy to use parental controls to manage access to the content available on stock.

Less than two weeks away from launch and we're seeing tremendous excitement amongst consumers.

As you saw during our Investor day presentation, we've got an amazing robust pipeline of original content in development and production for our full portfolio of streaming services. We have some of the best creative teams in the business and that's reflected in the tremendous appeal of our unparalleled program.

Okay.

And just the last two months Disney plus has delivered a string of good programs, including Marvel's incredibly original one division.

Season, two of Amanda Lauren, which ended with the surprise reveal that fan favorite Golar will have his own Disney plus series starting this December.

And Pixar artistic triumph soul, which debuted on the service and in theaters on Christmas day to great acclaim and has since taken in nearly $100 million at the global box office.

Warren and one division time into the broader Star Wars and Marvel franchises.

We're excited to continue exploring the endless possibilities that this unique ecosystem provides.

The fan response was overwhelming when we announced last week that Ryan Kugler, who is hard at work on Black Panther II will be developing a black Panther inspired series based in the Kingdom of all candour for Disney plus.

We're also thrilled to be expanding the scope and reach of ESPN the undefeated by creating a destination on Hulu devoted to black entertainment and culture.

Another example of our continuing commitment and investment in diversity and inclusion.

And we can't wait for the award winning and critically acclaimed film no man's land to be released in theaters and on Hulu on February 19.

And on March 5th Disney.

Disney Animation studios, right and the last Dragon and artistically beautiful film celebrating female empowerment will arrive in theaters and on Disney plus by a premier access as we set our goal is to increasingly put the consumer in charge and let them decide when and how they went to <unk>.

<unk> are one of a kind entertainment offerings.

Covid environment.

Where we have been able to reopen our parks with limited capacity guest have consistently demonstrated a willingness and a desire to visit which we believe is a testament to the fact that they feel confident in the health and safety protocols, we've put in place.

Average daily attendance at Walt Disney World grew significantly from Q4 into Q1.

In part by the increased capacity, we have been able to achieve as a result of our successful protocols.

It is clear that people want to reconnect with loved ones and spend time together doing things they enjoy and given the demand. We're seeing now we're confident it will only grow once the pandemic is behind us.

Work is also well underway on the all new spectacular nighttime show harmonious. This is all part of a much larger re imagining of aircraft to make it more Disney more family friendly.

Our timeline and more magical.

And I am, especially excited about the progress Thats been made on the New Star Wars, Galactic Star Cruiser Hotel at Walt Disney World.

People are going to be blown away by the experience. It is truly unlike anything we've done before.

At Disneyland resort, the exciting new Marvel themed land Avengers campus is currently scheduled to open later this year at Disney, California Adventure.

Crews are hard at work on the highly anticipated state of the art attraction, Mickey and Minnie Runaway railway coming to Disneyland in 2023.

We're also moving forward on a number of new projects at our international Parks at Shanghai Disney Land work continues on the first ever Zootopia themed land.

This fully immersive area will seamlessly blend Disney storytelling with advanced technologies, creating a one of a kind experience for our guests.

Throughout this challenging period, we've consistently demonstrated our ability to deliver world class programming on all of our platforms digital and linear.

On ABC, we continue to have the number one returning drama in the key demo of adults 18 to 49 with Grey's anatomy.

As well as the top new drama of the Paul fixed Scott both grades and Big Sky also hold the top broadcast drama spots on Hulu.

Also of note Espn's first ever NFL wildcard Mega cap featured six networks, including ABC, ESPN, plus and ESPN deportes.

It was the most extensive multichannel offering to date for an NFL playoff game.

During extraordinarily difficult year are amazing local and National ABC news team have been doing an absolutely outstanding job and.

And good morning America, and World News Tonight, with David year continue to hold the top spot as the number one morning show and evening newscast.

<unk> will enable us to enhance the consumer and guest experience.

Rowan expand our businesses and increase shareholder value.

With that I'll now turn it over to Christine.

Thanks, Bob and good afternoon, everyone excluding.

Excluding certain items diluted earnings per share for the fiscal first quarter were <unk> 32.

This is the first quarter in which we are reporting under our new organizational structure. We filed an 8-K last week with summary, recast segment financial information for fiscal 2020.

Today's discussion of our financial results will be organized by two segments Disney media and entertainment distribution or <unk>.

And Disney parks experiences and products for Deepak.

I'll start with our newest segment C met where operating income increased modestly in the first quarter versus the prior year.

Our financial reporting structure for <unk> includes three lines of business linear.

Linear networks direct to consumer and content sales licensing and other.

Operating income at linear networks, which now includes both domestic and international channels decreased versus the prior year quarter due to declines both domestically and internationally.

At our domestic channels the decline in operating income was due to lower results at our cable business, partially offset by an increase in our broadcasting business.

The decrease of cable was largely driven by ESPN where results in the first quarter were significantly impacted by higher rights costs.

This was largely due to timing of college football playoff games relative to our fiscal periods as well as higher MBA programming costs.

The first quarter included six CSP Bowl games compared to three in the prior year quarter.

For NBA finals games were played in the first quarter due to COVID-19 related timing shifts, whereas these games would have typically occurred in the prior fiscal year.

ESPN domestic advertising revenue decreased 4% in the quarter due to lower average viewership and the cancellation of certain college sporting events, partially offset by an increase in rates.

AD revenue at ESPN is currently pacing down quarter to date due in part to the timing of key events.

Total domestic affiliate revenue increased 3% in the quarter.

This was driven by a benefit of eight points of growth from higher rates.

Offset by a five point decline due to a decrease in subscribers.

Higher programming costs and higher advertising revenue reflected a shift in the timing of Indian Premier League cricket matches due to Covid.

And the decrease in affiliate revenue was primarily due to channel closures.

Moving on to direct to consumer.

Improved results at all three of our streaming services drove an improvement in direct to consumer operating results of nearly $650 million versus the prior year.

Last quarter, we guided to direct to consumer operating income declining by $100 million versus the prior year under our former segment.

Q1 2021 Walt Disney Co Earnings Call

Request a DemoDemo

DIS

Disney

Earnings