Q2 2021 Walt Disney Co Earnings Call
Along with a robust collection of library titles allows us to continually attract new subscribers and retain existing ones.
At the same time, we are also closely monitoring the recovery of theatrical exhibition as.
As consumers begin to return to theaters and I'll talk more about the specifics later.
Finally, we are focused on the ongoing recovery of our parks business and the resumption of Disney Cruise line. There have been some encouraging developments in recent months, particularly with the ongoing rollout of the vaccine and the gradual lifting of government mandated restrictions.
And through this time, we've taken advantage of the opportunity to make improvements to our operating procedures to enhance the guest experience through the use of technology innovations, new ticketing strategies and other offerings.
We are especially excited that after being closed for 412 days, we welcomed our first guests back with Disneyland two weeks ago and the response has been overwhelmingly positive.
Bob and I stood on main street USA on opening day and it was so wonderful to see the joy on our cash and guest spaces and feel the excitement in the air.
It's been fantastic to see cast members back at work. Most recently at Disneyland, we were able to quickly recall more than 10000, furloughed cast and retrain them to be able to operate for the state of California's new health and safety requirements.
We continue to see strong growing demand from consumers as we are at or near our reduced capacity levels at both Walt Disney World and Disneyland for the current quarter.
It's clear our guests are excited to get back to experiencing the magic of Disney and.
And they also have extraordinary confidence in our safety protocols.
At Shanghai, Disney Resort, where they just kicked off their year long fifth anniversary celebration. The park is operating at or above <unk> thousand 19 levels. We're also encouraged by what we're seeing at Hong Kong Disneyland and we are hopeful we will be able to announce a reopening date for Disneyland Paris.
Soon.
Despite the pandemic, we continue to make progress on a number of highly anticipated projects at our parks around the world, including the all New Avengers campus, which is set to open a Disney California adventure on June 4th.
I had a chance to visit recently and the attractions and multiple state of the art experiences are truly phenomenal.
We recently unveiled our newest cruise ship the Disney wish to the public with a virtual livestream presentation that has been viewed nearly $1 2 million times the.
The ship is amazing and it includes the Aqua mouse water right.
The first ever Disney attraction Etsy.
The Disney which will set sail on its maiden voyage in 2022 and bookings open to the general public on May 27.
On the studio side, we are pleased to be nearing full production levels and we are also significantly ramping up content creation at our studios consistent with the guidance, we provided at Investor day.
An example of this is 20th century and search like pictures, where they are gradually increasing output and will reach a steady state of 15 and 20 films respectively.
To fuel our general entertainment offerings across all of our distribution platforms.
We're incredibly proud that search lights, no man's land took home Oscars for best actress.
Best Director with Chloe Shaw, becoming the first woman of color to win the award and this picture.
That's five best picture win since 2009, and 43 Academy Awards in total.
Additionally, Pixar stellar record of award winning films continues with the studios animated masterpiece sold which took home Oscars for best animated feature and best original score.
And I'm happy to say that now millions are able to enjoy sole on Disney plus and nomad land on Hulu.
As we have consistently stated flexibility is a key component of our distribution strategy and we have outlined three approaches for distributing our films.
Releases in theaters with a simultaneous offering by a Disney plus premier access.
Releases straight the Disney plus and.
And traditional exclusive theatrical releases.
Here's all of this translates to our tremendous upcoming film slate.
<unk> will be released in theaters and buy a Disney plus premier access on May 28, followed by Pixar as Luca, which will be released exclusively at Disney plus on June 18.
The highly anticipated black widow will be in theaters and our Disney plus by a premier access on July nine.
And Disney's jungle cruise hilarious adventure filled expedition.
I'll be available in theaters and on Disney plus by a premier access on July 30.
I am pleased to announce today that amidst recent signs of increased consumer confidence and moviegoing. Two films 20th century is exciting comedy free Guy and Marvel's action adventure Shaanxi and the legend of the 10 rings will be released with a 45 day exclusive theatrical window on August.
<unk> at September 30, respectively.
And of course, regardless of where they originate all of our films and episodic series will end up as part of our robust library of content on our DTC platforms.
Like our films are Disney plus original series have become must watch deferred stock.
Starting with the success of the mandatory.
Load by Marvel's, one division and the Falcon and the winter soldier.
These not only became immediate hits, but part of the cultural zeitgeist.
And the anticipation for Marvel's newest series loci, which debuts on June nine has been through the roof.
The second season of high School musical the musical series, the all new the mysterious Benedek Society based on the popular young adult book series and the <unk>.
Animated series monitors at work are also coming to Disney plus in the next couple of months just to name a few.
We are uniquely positioned with the most compelling brands and franchises in entertainment and we continue to deliver the high quality one of a kind content that consumers want that.
That's clearly reflected in the success of Disney plus which amassed nearly a 104 million paid subscribers as of the end of the second fiscal quarter.
We are on track to achieve our guidance of 230 to 260 million subscribers by the end of fiscal 2024.
Looking at our entire portfolio of streaming services, we expect that as full production levels resume and we get to a more normalized cycle. The increased output will help fuel additional sub growth across Disney plus.
ESPN, plus Hulu and hot start.
Hulu and ESPN, plus had $41 6 million and $13 8 million paid subscribers, respectively at the end of the quarter.
On Hulu Buzzworthy content continues to boost performance, including the award winning <unk> original film the United States versus Billie holiday in season, four of the handmade scale, which premier to the biggest audience ever for Hulu original and Theres lots more coming to Hulu, including Marvel's New Anne.
Animated series Modoc.
Season, two of the hit series Love Victor and season 10 of the wildly popular anthology American horror story on FX on Hulu.
In March we launched ESPN plus on Hulu and we are very pleased with its early progress.
Viewers, who subscribe to both Hulu and ESPN plus are able to watch and engage with the great content, that's available on ESPN, plus without leaving the Hulu environment.
ESPN plus programming includes thousands of live sporting events a.
Original shows series and documentaries with the UFC lightweight championship by airing live on ESPN plus pay per view on may 15th.
The final match of the FA Cup also on May 15.
Followed by the PGA Championship Windows, 10, and the hiring anticipated third UFC matchup between desk in Korea, and Conor Mcgregor on pay per view July 10th.
Not to mention the incredible additions to our lineup, including NHL and more college football in the fall.
Life Sports are a very important component of our content business and even amidst the challenges of the past year. We have continued to build our unrivaled portfolio of sports rights in a disciplined way.
While our overall strategy is still very supportive of our linear business given the important economic value addressed for the company.
Also building out our ESPN plus direct to consumer offering and with every deal. We make we are considering both the linear and DTC components.
With this strategy in mind, we have reached a number of long term accretive deals that each play a very specific role as part of our sports portfolio.
Some are weighted more towards linear with a significant digital component such as the NFL and SEC deals.
Others, reflecting an emphasis on direct to consumer these.
These include agreements with the UFC.
PGA tour Bundesliga and the NHL.
For example, as part of a seven year rights deal with the NHL, 75% of the Lee fly National games will be available exclusively on ESPN, plus and Hulu and.
And ESPN plus will be the sole home for more than 1000.
Out of market NHL games.
Further cementing the service as a must have for hockey fans.
And today I'm excited to announce two additional sports rights deals.
We've reached a renewal appeal through 2028 with major League baseball with 30 exclusive regular season games, which include 25 Sunday Night Baseball games and opening night annually.
Coverage of the highly anticipated potential expanded wildcard series and the option to simulcast all live MLB coverage from ESPN networks on ESPN plus.
We've also signed historic rights agreement with the top Division and Spanish club football La Liga.
<unk> is one of the world's best most popular soccer leagues, including a number of the top clubs in the world and one of the best players in the World Lamb a messy.
And this eight year deal covering both English and Spanish language rights brings 380, La Liga matches and a host of La Liga two matches per season to ESPN plus beginning in August.
This deal bolsters ESPN pluses position as a top destination for soccer in the U S offering fans more than 2900 matches per season.
When you combine the unparalleled assets of the Walt Disney Company ESPN.
<unk>, plus ABC and Hulu, plus our highly engaging digital and social content. It's clear that Disney is the absolute leader when it comes to serving our sports fans in the most effective way possible.
We believe in the power of live sports and are confident our multiplatform rights deals we've made.
We'll provide us tremendous value now and into the future.
Overall, we are pleased with the encouraging signs of recovery across our businesses.
And we are confident we continue to move in the right direction for our future growth.
And with that I'll now turn it over to Christine and she'll talk more in depth about our results for the quarter.
Thank you Bob and good afternoon, everyone.
Excluding certain items diluted earnings per share for the second fiscal quarter increased 32% versus the prior year to 79 per share.
We are beginning to see progress in many of our businesses after more than a year of adverse impacts from the pandemic.
While we are not out of the woods yet we are pleased with our results this quarter at both our <unk> and Deepak businesses.
I'll walk through our results by segments.
<unk> with media and entertainment distribution.
Operating income at this segment increased by 74% in the second quarter versus the prior year due to higher results across all of the segments lines of business.
Linear networks, the increase was driven by growth at both our domestic and international channels at.
That domestic channels, both cable and broadcasting operating income increased versus the prior year.
Higher results at cable were driven by lower programming and production costs and higher affiliate revenue, partially offset by lower advertising revenue.
Espn's results were in line with the guidance, we gave last quarter and ESPN was the most significant contributor to cables growth this quarter.
The decrease in programming and production costs was largely due to the timing of the college football playoffs.
As we mentioned last quarter fiscal Q2 included only one CFP ballgame, the National championship compared to four in the prior year quarter, three CSP Bowl games and the National Championship game.
Cable programming and production costs also benefited in the quarter from lower production costs for other live sporting events and lower programming concept free form.
Lower advertising revenue cable was primarily due to lower average viewership at ESPN domestic advertising revenue decreased significantly in the quarter driven by lower ratings for key programming. In addition to the timing of the college football playoffs.
Quarter to date domestic advertising revenue at ESPN is currently pacing up significantly versus last year benefiting from the prior year's lack of significant live sports programming due to COVID-19.
At broadcasting higher results were driven by growth at ABC, partially offset by a decrease at the earned television stations.
At ADC lower programming and production costs and higher affiliate revenue, partially offset by lower advertising revenue.
Programming and production costs were impacted by the shift in timing of the Academy Awards, which took place in the third quarter this year compared to the second quarter last year.
Lower advertising revenue was primarily driven by lower average viewership and the timing of the Academy awards, partially offset by higher rates.
On our Q1 earnings call. We said, we expected the Academy awards timing shift and lower political advertising at our earned stations with negatively impacted broadcasting results in the second quarter versus the prior year, while we did see those specific adverse impacts play out overall Brian.
Casting results were higher than we expected driven by lower marketing spend due to timing shifts of some new series. In addition to a number of other smaller factors.
Okay.
Total domestic affiliate revenue increased 5% in the quarter. This was driven by a benefit of eight points of growth from higher rates offset by a four point decline due to a decrease in subscribers.
Operating results of international channels increased due to a decrease in programming and production costs and an increase in advertising revenue, partially offset by lower affiliate revenue.
Lower programming and production costs in the second quarter were driven by a higher percentage of content cost being allocated to our DTC business rather than our networks business as we continue the international expansion of Disney plus and Star. In addition to channel closures over the past year.
Sure.
Advertising revenue increased primarily due to the timing of BCCI cricket matches, which generally take place in the first quarter, but we're in the second quarter. This year due to COVID-19 related timing shifts.
Lower affiliate revenue at our international channels was due to channel closures as well as an unfavorable foreign currency impact.
And our direct to consumer businesses operating results in the quarter improved by over $500 million versus the prior year due to stronger results at Hulu and ESPN plus.
The increase that Hulu was due to subscriber revenue growth and higher advertising revenue, partially offset by higher programming and production costs related to the Hulu live TV service.
Hulu ended the second quarter with $41 6 million paid subscribers up from $39 4 million in Q1 inclusive of the Hulu live digital Mvpds service.
Paid subscribers to Hulu live declined modestly to $3 8 million from $4 million at the end of Q1, which we attribute primarily to the $10 price increase we took in December in addition to a modest impact from seasonality.
At ESPN plus improved year over year results were driven by subscriber growth and an increase from UFC pay per view events.
ESPN plus had $13 8 million paid subscribers as of the end of the quarter.
At Disney plus results were comparable to the prior year quarter as an increase in subscribers was largely offset by higher content marketing and technology costs.
As Bob mentioned earlier, we had almost 104 million Disney plus paid subscribers at the end of the second quarter.
At our annual meeting, we announced we have reached $100 million global paid subscribers.
We reached that milestone in early March so we added subs at a faster pace in the last month of the second quarter than we did in the first two months and that was despite no major market launches a price increase in EMEA and a domestic price increase towards the end of the quarter.
We attribute this success to the strength of our overall content slate the launch of the Star General Entertainment offering in many markets and the continued growth of Disney plus Hot Star.
Between Q1, and Q2 Disney plus Hot start was the strongest contributor to net subscriber additions, making up approximately a third of the total Disney plus subscriber base as of the end of the second quarter. However, our crew at Disney plus Hot Star was down significantly.
<unk> is the first quarter due to lower advertising revenue as a result of the timing of IPL cricket matches and the impact of COVID-19 in India.
As a reminder, the majority of the prior IPL tournament took place in fiscal Q1, and there were no gains in Q2.
The current IPO tournament began on April 9th in fiscal Q3 and was suspended last week given the COVID-19 situation in India.
Disney Pluses overall, our proved this quarter was $3 99.
Excluding Disney plus Hot Star It was $5 61.
As we move through the remainder of the year, we should start to see the benefit on Disney plus <unk> from price increases we've taken around the world.
Last quarter, we guided to second quarter direct to consumer operating income improving modestly versus the prior year.
Actual results came in significantly better versus the prior year due to Hulu advertising sales upside lower content and marketing expense at Hulu and Disney plus.
And better than expected ESPN plus pay per view results.
Content sales licensing and other operating income and demerge.
Increased in the second quarter versus the prior year.
Due to higher television slide results and lower content impairments, partially offset by lower home entertainment results.
Higher TV spot results were primarily due to an increase in income from sales of episodic content driven by sales of more profitable programs in the current period and lower write offs. This was partially offset by a decrease in sales of film content.
The decrease in home Entertainment results was driven by the absence of significant title releases in Q2.
Moving on to our parks experiences and products segments.
<unk> operating income in the second quarter decreased by $1 2 billion.
Year over year as growth in consumer products was more than offset by lower results at parks and experiences due to the impacts of COVID-19.
At consumer products growth in operating income was due to increases at our Merchandizing games licensing businesses.
The parks and experiences results were again adversely affected by COVID-19 related closures and reduced operating capacities versus the prior year.
Disneyland resort Disneyland, Paris, and our cruise business were closed for all of the second quarter, whereas these businesses closed in mid March of the prior year quarter.
Hong Kong Disneyland resort was opened for approximately 30 days during the second quarter compared to approximately 25 days in the prior year quarter.
Walt Disney World Resort, and Shanghai, Disney Resort, where both open for all of Q2.
In the prior year quarter Disney World closed in mid March and Shanghai closed in late January.
Our parks and resorts that were opened during the quarter operated at significantly reduced capacity yet all achieved the objective of a net positive contribution meaning that revenue exceeded the variable costs associated with opening.
At Walt Disney World attendance trends continued to steadily improve throughout the second quarter and guest spending per capita again grew by double digits versus the prior year.
Disneyland resort reopened on April 30th.
And as Bob mentioned earlier, we are very encouraged by the initial guest response.
Forward looking bookings for park reservations at both of our domestic parks are strong demonstrating the strength of our brands as well as growing travel optimism as case counts decline vaccine distribution ramps and government restrictions loosen.
Looking ahead, there are a couple of items I would like to mention.
At linear networks, we expect a significant decline in operating income year over year in the third quarter, largely due to higher sports programming and production costs at ESPN, which we expect to increase by $1 $2 billion versus prior year.
This year's Q3 includes marquee events such as.
The NBA Major League baseball.
Astor's Wimbledon and the European Football Championship.
Which compares to Q3 of last year during which we had a limited slate of events due to COVID-19.
At our direct to consumer business, we now plan to launch Star plus our Standalone General Entertainment and sports streaming services for Latin America on August 31.
Moving the launch to late summer allows us to leverage a strong sports calendar, which includes the return of European soccer leagues, including La Liga and the Premier League.
And ship games for the Copa Libertadores, the prominent regional International soccer competition, along with Grand Slam tennis.
As Bob mentioned earlier, we remain right on track to reach our fiscal 2024 guidance of 230 to 260 million subs powered by the addition of 30 million paid Disney plus subs in the first half of the year.
And notwithstanding our expectation for fewer net sub adds in the second half of the year given the COVID-19 related suspension of the IPL season, and our decision to move the Star plus Latin America launch to the fourth quarter, we remain very optimistic about our future.
And with that I'll now turn the call back over to Lowell, and we would be happy to take your questions.
Okay, Thanks, Christine and as we transition to the Q&A. Let me note once again that since we are not all physically together. This afternoon I will do my best to moderate by direct your questions to the appropriate executive and with that operator, we are ready for the first question.
Thank you as a reminder, if you would like to ask a question Press Star then one key on your Touchtone telephone.
First question comes from Ben Swinburne with Morgan Stanley. Your line is open.
Thanks, Good afternoon.
Maybe just starting on the direct to consumer side.
Maybe for Bob could you talk a little bit about how the price increases have landed relative to your expectations.
Internationally with star, but also in the U S kind of the impact on churn.
How that might inform your decision making process going forward on price.
And then I just wanted to ask I think you guys generated maybe $700 million or so of free cash flow in the quarter.
Molly we don't talk a lot about quarterly free cash flow, but it's been a while I'm just wondering Christine if you think at this point.
We're back in free cash flow positive.
Going forward and expect to generate free cash flow for the year.
Thank you Bob.
Okay, John Thanks for the question Bob.
First one on.
Price response, and then Christine Jay for cash flow question.
Alright of course these were our first price increases since we launch I have to say that we're extremely pleased with how the market reacted to both in the U S. We've not observed any significantly higher churn rate since the price increase in EMEA as we added star is a six brand title, we've actually seen an improvement.
In our churn rate, so we seem to be fairly resilient to those price increases and as such I think it makes us feel relatively bullish going forward that we still offer a tremendous price value relationship across the world for Disney plus.
And then and thanks for the free cash flow question, we don't usually get those.
But I would like to comment on it because it's something that we're tracking not only this year versus last year and we look at it actually weekly, but I'm also looking at it versus fiscal 19, which I consider a more normalized year.
I would say that the upside that we're really seeing and we're quite pleased with it is since we've reopened Walt Disney World and we really don't have.
The impact of Disney land, yet, but we're seeing as I mentioned, a strong per cap growth in the parks that's flowing through the park's cash numbers and we're also seeing good strong cash flow from our direct to consumer businesses.
So those two elements are kind of upside to what we had planned for.
And I would also say that the there is some choppiness year over year because of some of the shifts and sports rights.
Hence timing from last year to this year, but we expect that to be more normalized this year as we get through the year, but we're looking we're looking at.
A more favorable free cash flow than we did when we started off the year.
Thanks, a lot.
Ben Thank you operator next question please.
Our next question comes from Alexia <unk> with Jpmorgan. Your line is open.
Thank you one on streaming as well on this one.
On the parks.
How should we think about really Disney class describe a gratifying part I know you gave a lot of great color in terms of how to think about the cadence for the balance of the year and details on the growth we've seen so far unimpressive, perhaps between so far but I'm wondering if you look at what you see internally as major drivers for the step up.
Jeff step options. So you get to your long term target is it really around certain content drop is it around eventually moving more into eastern Europe or other markets in Asia I guess, what do you guys see as sort of the main drivers for sub growth and then just a follow up if I can on the parks any color you can provide on <unk>.
How we should think or how youre thinking about when it's okay to start raising capacity attendance capacity, particularly at Walt Disney World.
Okay Alexia thanks for both questions Bob do you want to Warner inside both of those yes.
Take them both so on the first one in terms of the drivers for sub growth going forward, we really see four different elements first of all is our contents Lee as you know.
We're spending a lot of money across a variety of franchises in order to create the content, that's going to keep consumers coming back and keep not only our sub number growing but also our engagement growing across all of our platforms. So the first one is content slate. The second one is our general entertainment international growth driven.
Our star brand and we think Thats going to continue to fuel growth for international territories as well as Disney plus the third one is continued market expansion.
And in markets, where Disney plus is not yet been launched and as you see we're announcing Malaysia. Today is June 1st in Thailand. As June 30, So market expansion will continue to be a piece of it but one thing that continues to impress us is the opportunity to have the bundle in the U S. B.
Even larger all the metrics that we see all the performance factors are extraordinarily positive for that so I would say those are the four components that continue to drive us.
And our bullishness in terms of our ability to continue to project that we're going to get between 230 260 million subs by the end of 'twenty four in terms of the parks and when we're going to sort of be able to raise our capacity limits, we've actually already started that given.
The guidance that.
Just Keith today from the CDC and earlier guidance that we got from the Governor of Florida.
We've already started to increase our capacities.
Those obviously today's.
Our guidance that we got from the CDC in terms of those that were vaccinated do not necessarily need to wear masks.
Andy more both outdoors and indoors.
Is very big news for us.
Particularly if anybody's been in Florida in the middle of summer with John.
And then it can be quite daunting. So we think thats going to make for an even more pleasant experience and we believe that as were now bringing back a lot of people back to work that is going to be an even bigger catalyst.
For growth in <unk>.
Pendants, and we've been quite pleased to date so.
I think youre going to see an immediate increase in the number of folks that we're able to.
Admit into our parks through our reservation systems that we recently implemented so we're very very excited about that.
Thank you.
Thank you. Our next question comes from Michael Nathanson with Moffett Nathanson. Your line is open.
Thanks.
I have two.
One is on the gross addition side of <unk>.
Disney plus we heard from Netflix.
Been a pull forward you got maybe perhaps the reopening is has impacted gross additions can you talk a bit about what youre seeing in some of the more mature or I guess developed markets on a gross addition side and then.
Do you guys have consistently beat us our oi profits or lack of losses I would say on DTC.
Which of the platforms is providing the biggest surprise.
And does it make you rethink maybe some of the guidance you gave around breakeven given how strong years rental car on the limitation of losses.
Bob Why don't you start and then we'll go over to Christine Okay. I'll take the first one in terms of the additions we've really seen it across our geographies. When you look at it from a mature versus new every single market that we've launched and has exceeded our.
Patients so far on in terms of the new but in terms of the mature keep in mind that we added 30 million households in the first six months of the fiscal year, which is in line with our expectations.
And the domestic continues to contribute to that.
The addition of the Marvel content and not only the Marvel content, but how strong a spin and the cadence of additions and as you know we will soon be announcing soon.
Soon be launching loci man.
Man is a tremendous catalyst for growth for us and in the future as we get to more new content and serial content coming from Star Wars.
We're really really encouraged by what that's going to mean in terms of.
Engagement because as you know engagement is sort of a precursor for on net sub adds and so we're very pleased with both.
Our domestic as well as our let's call it more mature markets those that we've been in the marketplace for at least a year, but also our new markets as well.
Okay and I'll take the second part of your question Michael.
Nice to hear your voice.
Look the biggest drivers for direct to consumer.
Coming out of Hulu and Disney plus.
They are a little bit different Disney plus we saw some lower content costs and that was due to some lower allocated costs for some of our own titles compared to what we had expected and at Hulu. There was also some lower content costs, but for different reason it was from third party content that is coming at depth.
Delayed because of some <unk>.
COVID-19 issues, so content coming in is not coming in as quickly as they had thought but the most important driver for Hulu is the addressable advertising strength that continues to be a real upside.
And it's going strong and we expect that to continue there's real demand for that addressable advertising.
Thanks for taking my question was sorry, well thanks, Bob regarding a go ahead Michael.
And does that make you rethink your guidance on breakeven.
Timelines strong who then no no the only the only guidance that we have reaffirmed was the 2024 total Disney plus global subs, Bob mentioned it I mentioned it that's at $2 30 to $2 60, all the other guidance, we have not reaffirmed or changed at this point.
Still going through our long term planning cycle, so we're not making any changes now.
Thank you Christine.
Thank you. Our next question comes from Jessica Reif Ehrlich with Bofa Securities. Your line is open.
Alright, Thanks, guys the same parks in DTC.
Some of the pictures from the parks look like.
Totally fully even with this reduced capacity.
So now with capacity increasing.
How does does that relate to the kind of normal attendance, even though you don't have international visitors. It still feels like Mike from what we can see that it's fairly full and you said demand is strong I just wonder if you can comment on that and and also any update you can give us given the strong demand how that.
Overlays with some of the things you've talked about in the past that didn't really discuss today, but the yield management and some of the cost changes you've put in place.
And then.
Sorry for such a long winded question, but given the tight labor market are there any issues that you're seeing there either on the cost side for <unk>.
Hiring and then finally on DTC I mean this is the slower net adds in the second half it sounds like it's coming from India, which of course is understandable given IPL as well as COVID-19, but theres also.
It's likely to be an impact on <unk> a positive impact on our program I'm just wondering how does that all translate into the operating results.
Thanks, Justin So Bob why don't you take the parks questions and you want to start on the on the Disney plus plus interest you may want to jump in again.
Okay. So in terms of the parks demand domestically our intent to visit at Walt Disney World is growing and is actually already flat with 19, which is obviously our last pre COVID-19 year. So that's really good news for us and since we've opened up Disneyland resort intent to visit.
Is actually growing as well so we're thrilled with the guest response to that so as capacity limits increased we don't think we're going to have any problem at all.
Sort of increasing our attendance to match that capacity that is not something that keeps any of us up at night in terms of our yield management as you know we've been practicing yield management for a while and it's really become an art form with this extraordinarily.
Limited capacities that we've been operating yet, but you've seen the margins very healthy our yield is growing up.
From a very healthy standpoint consumers are spending more and we're doing it under some tremendous cost management parameters, because everything has become automated and so we've sort of got the perfect positive storm. If you will where we've got plenty of demand, we've got really great yield management gains.
Cost management at the same time and in terms of labor, we had about 80% of our cast members reached.
Return that we've asked to return and obviously one of the gating factors for us to continue to increase capacity is to continue to get more and more cast members back it thrills us to be able to do that but we've had no problems whatsoever in terms of trying to get our cost to come back and make some magic for our guests.
Christine.
The commuted mutiny.
I'm going to talk about Hey, Jessica I'm going to talk about direct to consumer and the slower net adds is expected for the second half of the year that is in fact the case.
And it is largely due to the COVID-19 related suspension of the IPO and also that decision that we made to move the star plus Latin America launch.
The fourth quarter.
Once again, we did that because of the strength of the sports calendar that we would have upon launch the other thing that's going to happen here is with the absence of the IPL games in India that will also have an impact on advertising revenue. So you could see a decrease in the <unk> and the subs in India if that plays out.
Like we just said, but the other thing is we did take price increases for domestic U S as well as EMEA for Disney plus so our overall <unk>.
Could benefit so we just took the price increase in the U S. At the end of March and we will see how that plays out in <unk> in the upcoming quarters.
Thank you.
Thank you operator.
Our next question comes from Doug Mitchelson with Credit Suisse. Your line is open.
Thanks, so much thanks for taking the question. So all I would say sort of two areas of focus. The first you started touching on it a bit with the last series of questions, but I think one of the core theses is that.
Coming out of the pandemic the potential that the parks that Disney are more profitable than pre pandemic and you've talked about some of those drivers one of the perhaps when the parks returned to 100% of the capacity is that capacity different than it was pre pandemic because the bigger are you smarter on pricing or margin structurally higher. So one I was just curious if you agree with.
Thesis at the parks could end up being more profitable coming out of <unk>.
Have that Mike then it was going in and then the <unk>.
Areas. The NFL deal was obviously super interesting and I'm curious under what circumstances would you consider doing what some peers are doing simulcasting your football games by Mike football games from either ESPN and ABC onto ESPN plus thank you.
Doug. Thank you. Thanks for the questions I will turn on both of them over to Bob.
Okay in terms of our park in terms of the arena relative.
Profitability as you know we have theres a lot of negative impacts of course.
With COVID-19, but one of the things that it gave us a chance to do as we were forced to stop operation was to completely reexamine.
How we.
Priced and programmed or our tickets and as you all know.
We ended our current annual pass program at Disneyland.
That gives us a chance to sort of create a modern version of a park loyalty program and affinity program that isn't necessarily governed by legacy and as you know the.
Net contribution back to the company.
<unk> tremendously and was one of the levers that we use to grow yield over the past several years, depending on what type of ticketing structure. A particular guests came in with the ability now for us to sort of completely reconsider how we go about our loyalty programs and our frequent visitor programs we.
Have the chance to make even more advancements.
Not only in terms of the guest experience and make sure that guests have a tremendous experience no matter what day of the year. They come whether it's a high demand data are relatively low demand day, but also the ability to increase.
Our per caps and our yields and we've already seen tremendous growth in those as you are seeing over the last couple of quarters, but I don't think we've even scratched the surface in terms of what we can do when we finally restart with some of our programs in terms of making sure again that not only do improve the guest experience with it.
Same time.
You get an adequate return to our shareholders for the type of experience that we do give to our guests. So very positive on those factors in terms of the ability to simulcast with ESPN, plus and ESPN and ABC, that's actually been envisioned in in the in the deals and we've gotten a lot of flexibility.
Not only in terms of our ability to take our programming to our DTC platforms.
Things like Hulu and ABC, So that's actually been envisioned and we plan on being fairly aggressive in that way.
I think that one of the advantages of the Walt Disney Company and sports is that we've got so many ways to reach our consumer base and I think the.
The leagues understand that and we certainly do as well and I think our guests do as well.
Thank you.
Thank you Doug Operator next question please.
Our next question comes from.
Come on.
Furnace Sarwar with Barclays. Your line is open.
Thank you.
So a couple if I could I mean, firstly I guess, Bob when you look at the vision for sports streaming.
Now have digital rights across all the major supports that you carry on ESPN.
And you've made some hard choices on the on the other businesses when it comes to licensing and studios and so on in order to pivot Mayer.
Hi, David for streaming.
But that choice with respect to sports streaming.
Feels like it's still a couple of years off in terms of pivoting ESPN as a business completely towards streaming. So could you just talk about the longer term vision now that you're a sports portfolio is in place how should we think about.
ESPN relative to ESPN plus and.
How youre thinking about the transition being accretive overall.
And secondly, I guess Chris.
Christine the guidance around the second half cadence for DTC subs.
The IPL suspension I guess could change I think they are looking at other geographies to ramp the tournament.
That was to happen would be outlook change for subscriber growth in the second half.
Okay. Thanks, Bob.
The sports question to you and then Christine you can talk a little bit about <unk>.
PL impact on subs.
We've talked a lot about excuse me, we've talked a lot about flexibility when it comes to pivoting between linear and more traditional legacy platforms and our digital rights direct to consumer platforms and the reason we want that flexibility is because we know things are going to change and as we've always said when the right time comes for us to.
Make a step function increase.
As we've done with our entertainment platforms to our sports platforms.
And it's accretive to our shareholder proposition. We will go ahead and do that a longer term vision is to <unk>.
Parallel path, both ESPN at ESPN, plus but if there is any indication of where we're going with this I think our recent deals and the flexibility that we negotiated in to go to these direct to consumer platforms, and specifically ESPN plus or whatever.
Follows ESPN plus in terms of the direct to consumer platform I think that's a 100% indicative of our bullishness of not only our capability of doing that but the viability of doing that.
I can on your question around if they move the IPO about half of the 60 IPL matches that were expected to be planted this season have already taken place. So youre looking at the back half 30.
Games to be played so sure if they were able to successfully relocate.
The tournament, we would hopefully see an impact especially on advertising.
And so there would be a positive what were expecting it would be better than if there were no rescheduled the big issue is going to be when in the quarter and if it overlaps into.
Q4, or if it goes into the first fiscal quarter, which starts for us in the beginning of October.
If we would have it would.
Would have an impact on it it just depends on when it would come in.
So.
Let's hope they are able to relocate it.
Alright. Thank.
Thank you Bob.
You can answer thanks for the questions. Operator next question. Please.
Our next question comes from John Hodulik with UBS. Your line is open.
Great. Thank you guys.
Maybe keeping with the sports rights question. It does look like you guys are sort of bulking up on sports writers.
Would you would you say you still have demand for additional rights.
If the economics makes sense and I'm thinking sort of Sunday ticket or the Epo or is there sort of a level that you get to in terms of spending.
You feel you need to cut it off and then given all the rights and the digital platform.
The sports gambling become a bigger opportunity for the company and something that you expect it to go deeper into thanks.
John Thank you Bob do you want to take those yes. Thank you.
In terms of the sports rights.
Just recently closed MLP.
La Liga NFL NHL. So we certainly as you have suggested have a full.
Complement of sports to please almost anybody in the you take that in addition to the NBA rights that we have and yes, we've got a full house there.
In terms of our appetite for going further in terms of whats really left theres not much will you mentioned Sunday ticket and that's something that we're in conversations with and we're considering and we're thinking about it obviously.
An attractive property, but we'll only do it just like our other rights. If it is something that add shareholder value and that's the filter that we'll continue to look for and we're really happy with frankly the deals that we've got in terms of representing things that are accretive to our shareholders. So far and we will take that same approach going forward.
In terms of the gambling opportunity as you know we stuck our toe in this water.
In the last couple of years in terms of sports Foots links.
With a few of the players out there.
And I think going forward, we see this as an opportunity we seized an opportunity we know that.
It represents very little risk to.
<unk> as a company and very little risk to ESPN as a matter of fact, it's actually it builds the brand equity from the research that we've had in terms of some of the younger audience.
Final sports because it's such an integral part of the experience and so we think it's actually a growth vehicle for.
For us, but we'll.
Walk into a carefully and monitor it carefully, but we have a greater appetite to do more and more in that area.
Great. Thanks, Bob.
Okay.
Thanks, John Operator, we have time for one more question today.
We have a question from Brett Feldman with Goldman Sachs. Your line is open.
Yes. Thanks for taking the question you mentioned during your prepared remarks. The three primary ways you look to released theatrical content, whether it's in the theaters are on your direct consumer platforms and one of those methods is simultaneous release on in the theaters and premium access and I can understand during COVID-19. When it was very unlikely that people will be in theaters.
While that was a reasonably easy call. It seems like it's getting a little trickier to make a decision around what to film has the right characteristics of that type of release model going forward. So I was hoping you could maybe give us some insight in terms of what youre weighing when you make that decision and in particular with your big franchises. For example, you'll be doing this with black widow, what gives you conviction that you can build and nurture and create a lot of it.
Museum around those Mega franchises without at least some limited theatrical window. Thank you.
Thanks, Bob.
Yes, I am going to take the second one first if there's any marker in terms of our ability to continue to build franchises. We know theatrical as a proven way to do that but our merchandize sales on man Delorean that never had a theatrical release certainly one extraordinary marker in terms of the fact that whilst the ethical continues to be a great way for us to build franchises.
Our first big data point.
Using our Disney plus platform to sell merchandise has been extraordinarily successful for us as well in terms of the premier access you're absolutely right.
As we get into a situation, where we're trying to monitor our consumers ready to go back in the theaters of course, 90% lets say of the domestic marketplace is open right now and we're encouraged in terms of pulling in terms of that growing going forward, but if you look at last weekend box office for an example.
Ample and you compared versus an average of the last three years of pre COVID-19 box.
Box office, it was 85% below domestically and 63% below.
67% below internationally. So we know the market is not quite there yet so the Disney Premier access strategy one of the things that gives US right now and we're grateful for this is the ability to go ahead and try to release things into the market and try to re prime the pump if you will but at the same.
Time know that for those consumers that are a little leery still about going into a Pac theater, but they can go ahead and watching it in the safety and convenience of their home in terms of going beyond this fiscal year, we've not announced exactly what our strategy is going to be in terms of which titles will be.
<unk>, plus Disney Premier access, which ones will be direct to Disney plus or which ones will go into theaters, but know that we'll continue to watch the evolution of the recovery of the theatrical marketplace and we will use that flexibility to make the right call at the right time, but right now we've only called those films that are in this fiscal year.
Because of the relatively fluid nature of the recovery of exhibition.
Thank you.
Brad Thanks for the question 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.
Let me also remind you that certain statements on this call, including financial estimates or statements about our plans expectations and beliefs or business prospects and other statements that are not historical in nature 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 our other filings with the Securities and Exchange Commission. This concludes today's call.
And wish everyone, a very pleasant good good evening. Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect.
Goodbye.
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Good day, and thank you for standing by and welcome to the Walt Disney Company Second quarter 2021 financial results Conference call.
At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session Jimmy Press Star one on your telephone. Please be advised that today's conference is being recorded I would now.
I'd like to hand, the conference over to your speaker today, well singer Senior Vice President of Investor Relations. Please go ahead.
Good afternoon, and welcome to the Walt Disney Company second quarter 2021 earnings call.
The 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 be available on our website.
We are once again hosting today's call remotely. So joining me remotely are 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 your questions. So with that let me turn the call over to Bob and we'll get started.
Thanks, Paul and good afternoon, everyone.
It's been a busy few months and we've been pleased to see more encouraging signs of recovery across our company.
We ended the second fiscal quarter with adjusted EPS up 32% to 79 cents.
Impaired to 60 last year.
And since then we've continued to make progress across our businesses as we remain laser focused on our ongoing recovery, while also fueling long term growth.
Our strategic focus continues in three key areas first is direct to consumer we successfully launched our streaming offerings Disney plus and star and a number of markets internationally.
And we've been pleased with the growth and engagement in those markets today.
Our steady cadence of new high quality branded content.
Along with a robust collection of library titles allows us to continually attract new subscribers and retain existing ones.
At the same time, we are also closely monitoring the recovery of theatrical exhibition.
As consumers begin to return to theaters and I'll talk more about the specifics later.
Finally, we are focused on the ongoing recovery of our parks business and the resumption of Disney Cruise line. There has been some encouraging developments in recent months, particularly with the ongoing rollout of the vaccine and the gradual lifting of government mandated restrictions.
And through this time, we've taken advantage of the opportunity to make improvements to our operating procedures to enhance the guest experience through the use of technology innovations, David ticketing strategies and other offerings.
We are especially excited that after being closed for 412 days, we welcomed our first guests back with Disney Atlanta, two weeks ago and the response has been overwhelmingly positive.
Bob and I stood on main street USA on opening day and it was so wonderful to see the joy on a cash and GAAP spaces and feel the excitement in the air.
It's been fantastic to see cast members back at work. Most recently at Disneyland, we were able to quickly recall more than 10000, furloughed cast and retrain them to be able to operate for the state of California, New health and safety requirements.
We continue to see strong growing demand from consumers as we are at or near our reduced capacity levels at both Walt Disney World and Disneyland for the current quarter.
It's clear our guests are excited to get back to experiencing the magic of Disney.
And they also have extraordinary confidence in our safety protocols.
At Shanghai, Disney Resort, where they just kicked off their year long fifth anniversary celebration. The park is operating at or above FY 19 levels. We're also encouraged by what we're seeing at Hong Kong Disneyland and we are hopeful we will be able to announce that reopening date for Disneyland Paris.
Soon.
Despite the pandemic, we continue to make progress on a number of highly anticipated projects at our parks around the world, including the all New Avengers campus, which is set to open a Disney California adventure on June 4th.
I had a chance to visit recently and the attractions and multiple state of the art experiences are truly phenomenal.
We recently unveiled our newest cruise ship that Disney wish to the public with a virtual livestream presentation that has been viewed nearly $1 2 million times the ship is.
Amazing and it includes the Aqua mouse water right.
The first ever Disney attraction at Steve.
The Disney wish will set sail on its maiden voyage in 2022 and bookings open to the general public on May 27.
On the studio side, we are pleased to be nearing full production levels and we are also significantly ramping up content creation at our studios consistent with the guidance, we provided at Investor day.
An example of this is 20th century and search like pictures, where they are gradually increasing output and will reach a steady state of 15 and 20 films respectively.
To fuel our general entertainment offerings across all of our distribution platforms.
We're incredibly proud that search lights Nomad land took home Oscars for best actress.
Best Director with Chloe shall becoming the first woman of color to win the award and best picture.
That's five best picture win since 2009, and 43 Academy Awards in total.
Additionally, Pixar stellar record of award winning films continues with the studios animated masterpiece, So which took home Oscar for best animated feature and best original score.
And I'm happy to say that now millions are able to enjoy so Disney plus and nomad land and Hulu.
As we have consistently stated flexibility is a key component of our distribution strategy and we have outlined three approaches for distributing our films.
Releases in theaters with a simultaneous offering by a Disney plus premier access.
Well at least the strike that Disney plus and.
And traditional exclusive theatrical releases.
Here's all of this translates to a tremendous upcoming film slate.
<unk> will be released in theaters and buy a Disney plus premier access on May 28, followed by Pixar as Luca, which will be released exclusively at Disney plus on June 18.
The highly anticipated black widow will be in theaters and our Disney plus by a premier access on July nine.
And Disney's Jungle cruise hilarious adventure built expedition.
I'll be available in theaters and on Disney plus by a premier access on July 30.
I am pleased to announce today that amidst recent signs of increased consumer confidence and moviegoing. Two films 20th century is exciting comedy free Guy and Marvel's action adventure change she and the legend of the 10 rigs will be released with a 45 day exclusive theatrical window on August.
At September 3rd respectively.
Of course, regardless of where they originate all of our films and episodic series will end up as part of our robust library of content on our DTC platforms.
Like our films are Disney plus original series have become must watch events, starting with the success of the mandatory.
Claude by Marvel's, One division and the Falcon and the winter soldier.
These not only became immediate hits, but part of the cultural zeitgeist and.
And the anticipation for Marvel's newest series loci, which debuts on June nine has been through the roof.
The second season of high School musical musical series, the all new the mysterious Benedek Society based on the popular young adult book series.