Q1 2023 Walt Disney Co Earnings Call

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If you do not anticipate asking your question. Please listen to the webcast located on the company's website under the Investor Relations section.

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If you do not anticipate asking a question please listen to the webcast located on the company's website under the Investor Relations section.

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Good day and welcome to the Walt Disney Company's first quarter 2020 financial results Conference call.

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Please note today's event is being recorded.

I would now like to turn the conference over to CFO Jonny Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, it's my pleasure to welcome everybody to the Walt Disney Company's first quarter 2023 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 being webcast and a replay and transcript will also be made available on our website.

Joining me for today's call are Bob Iger, Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.

Following comments from Bob and Christine we will be happy to take some of your question. We have a lot to get through today, but we will do our best to answer as many questions. As we can so with that let me turn the call over to Bob to get started.

Thank you Alexia and good afternoon, everyone.

It's an extraordinary privilege to lead this remarkable company again, especially at the special moment in its history as we celebrate our centenary.

Since I first became CEO in 2005, I have guided the Walt Disney company through two significant transformations.

First was to confer greater creative control and authority to our creative businesses and to focus on great brands and franchises.

It was also aimed at embracing new technologies and expanding internationally that ultimately led to the acquisition of Pixar Marvel and Lucasfilm.

Second transformation took place beginning in 2016, when we laid the foundation for Disney to become a true digital company.

As we were planning to launch our streaming platforms the opportunity arose to acquire numerous assets from 20 <unk> century Fox.

And that acquisition gave us a bigger library with more franchises.

Broader global reach and a talented experienced management team that enabled us to generate even more higher quality content.

In 2019, Disney plus launched with nearly 500 films and 7500 episodes of television from across the World with Disney.

Three years later its meteoric rise is considered one of the most successful rollouts in the history of the media business.

Now it's time for another transformation.

One that rationalises, our enviable streaming business and puts it on a path to sustained growth and profitability.

While also reducing expenses to improve margins and returns and better positioning us to weather future disruption increased competition and global economic challenges.

We must also returned creativity to the center of the company increased accountability improve results and ensure the quality of our content and experiences.

Now the details.

Our company is fueled by storytelling and creativity and.

And virtually every dollar we earn every transaction every interaction where their consumers emanates from something creative.

And I've always believed that the best way to split great creativity is to make sure the people who are managing the creative processes.

<unk> empowered.

Therefore, our new structure is aimed at returning greater authority to our creative leaders.

And making them accountable for how their content performs financially.

Our former structure suffered that link.

And must be restored.

Moving forward our creative teams, we will determine what content, we're making how it is distributed and monetized and how it gets marketed.

Managing costs maximizing revenue and driving growth from the content being produced will be their responsibility.

Under our strategic reorganization, there will be three core business segments.

Disney Entertainment.

The networks, ESPN, plus and our international sports channels.

And Josh Tomorrow will continue to be chairman of Disney parks experiences and products, which will include our theme parks resort destinations and cruise line as well as Disney's consumer products games and publishing businesses.

These organizational changes will be implemented immediately and we will begin reporting under the new business structure by the end of the fiscal year.

This reorganization will result in a more cost effective coordinated and streamline approach to our operations and we are committed to running our businesses more efficiently, especially in a challenging economic environment.

In that regard, we are targeting $5.5 billion of cost savings across the company.

First reductions to our non content costs will total roughly $2.5 billion not adjusted for inflation.

$1 billion in savings is already underway and Christine will provide more details, but in general the savings will come from reductions in SG&A and other operating costs across the company.

To help achieve this we will be reducing our workforce by approximately 7000 jobs.

This is necessary to address the challenges we're facing today I do not make this decision lightly.

I have enormous respect and appreciation for the talent and dedication of our employees worldwide and are mindful of the personal impact of these changes.

On the content side, we expect to deliver approximately $3 billion in savings over the next few years, excluding sports Christy.

Christine will be providing more details during the call.

Turning to our streaming businesses I'm proud of what we've been able to achieve since the launch of Disney plus just three years ago, we are delivering more content with greater quality in more ways in more places and to larger audiences like.

Like many of our peers, we will no longer be providing long term subscriber guidance in order to move beyond an emphasis on short term quarterly metrics, although we will provide color on relevant drivers.

Instead, our priority is the enduring growth and profitability of our streaming business.

Current forecasts indicate Disney plus will hit profitability by the end of fiscal 2024, and achieving that remains our goal.

Since my return I have drilled down into every facet of the streaming business to determine how to achieve both profitability and growth.

And so with that goal in mind, we will focus even more on our core brands and franchises, which has consistently delivered higher returns we will aggressively curate our general entertainment content.

We will reassess all markets, we have launched in and also determined the right balance between global and local content will.

Will adjust our pricing strategy, including a full examination of our promotional strategies.

We will fine tune, our advertising initiatives on all streaming platforms we.

We will improve our marketing better balancing platform and program marketing, while also leveraging our legacy distribution platforms for marketing and programming.

This may include greater use of legacy distribution opportunities to increase revenue and more effectively amortize content investment.

And as I said before our new organizational structure will reestablish the direct link between content decisions and financial performance.

This is one of the most important steps, we can take to improve the economics of streaming business.

There's a lot to accomplish but let me be clear. This is my number one priority. We're focused on the success of our streaming business and the return it generates for our shareholders long into the future.

Before I turn this over to Christine a few comments about the quarter.

James Cameron's avatar, the way of water, which was easily the most successful film of the quarter has become the fourth biggest film of all time globally with close to $2.2 billion earned at the box office to date.

The global popularity of this film will result in the creation of more opportunities for fans to engage with the franchise, which they've been doing at Walt Disney World's Pandora the world of Avatar as well as in theaters globally and on Disney plus where the first films delivered very strong numbers.

And today I am thrilled to announce that we will be bringing an exciting avatar experience to Disneyland.

You'll be sharing more details on that very soon.

Avatar represents yet another core franchise for the company.

As you have seen time and time again, we are in a unique way of leveraging creative success across multiple businesses and territories and over long periods of time.

Speaking of our parks, we had an outstanding quarter in Q1, while we continued our purpose full efforts to control capacity to preserve guest experience.

Last month, we also announced some price adjustments that are parks were listening to guess feedback and we are continuously working to improve the quality and value of their experience.

We're also proud of our creative success as we led all studios with the most Academy Award nominations, including two best Picture nominations, 20th century Studios Avatar of the way of water and searched like pictures, the benches and finish Sharon.

Marvelous Black Panther, we're kinda forever received five Oscar nominations and in addition to an 840 million dollar run at the box office. It launched on Disney plus last week and it has quickly become one of the most successful Marvel films on the platform.

Looking ahead, we're excited about our fantastic lineup of new films coming to theaters. This year, starting with next week's release of Marvel's aunt men in the Wasp quantum ADM, followed by other highly anticipated theatrical titles, including the little Mermaid Guardians of the Galaxy volume three Pixar is elemental.

Indiana, Jones, and the dialogue Destiny and Disney's haunted mansion.

Lucas films the Mandalorian the series that started it all for Disney plus will be back at the beginning of March for it's highly anticipated third season.

Today I am so pleased to announce that we have sequels in the works from our animation studios to some of our most popular franchises.

Toy story frozen and zootopia with more to share about these production soon but this is a great example of how we are leaning into our unrivaled brands and franchises.

The Walt Disney Company also one more golden globes than any other entertainment company. This year, a total of nine including for avid elementary. The first broadcast show to win a Golden Globe for best series and nearly a decade.

Without question, we have a world class television business that fuels, both are linear channels and director consumer services, especially with the assets acquired through the Fox transaction.

It goes without saying that the best shows lead to the most lucrative library and have the power to endure because of their quality.

Simpson's illustrates this perfectly Disney plus launched back in 2019 with more than 30 seasons and it remains one of our top performers today.

Cross the board or television business is second to none and that includes a b C news, which remains America's number one news network.

Power of ESPN brand also continues to deliver for us.

<unk> 22, ESPN linear ratings were up 8% overall and 14% in primetime and we are also growing rapidly across our digital platforms.

Being selective in our rights renewals and continued to approach writes acquisition with discipline and a focus on supporting both sides of Espn's business traditional linear and digital.

ESPN is more than just a network and today. The team is harnessing innovative technology to deliver spectacular coverage and entertainment to audiences, who have a deep connection to the brand and content.

Now when it comes to investing in growth and returning capital to shareholders. We will take a balanced and disciplined approach as we did throughout my previous tenure as CEO . When we invested in our core businesses and acquired new ones bought back stock and painted dividend to our shareholders.

As a result of the impact of the Covid pandemic, we've made the decision to suspend the dividend in the spring of 2020.

Now that the pandemics impacts to our business are largely behind us we intend to ask the board to approve the reinstatement of a dividend by the end of the calendar year.

Our cost cutting initiatives will make this possible and while initially it will be a modest dividend, we hope to build upon it over time.

Christine will provide more information on that.

And finally on the topic of succession. The board recently established a dedicated succession planning committee.

Committee is chaired by Mark Parker, who will become chairman of the wealth Disney Company's board following our annual meeting.

I'm excited to work with him and his new capacity and grateful to our outgoing Board Chairman Susan Arnold for 15 years of tremendous service.

Obviously, there's a lot going on but as I said before I'm truly excited to be back in to lead this great company through this necessary transformation I'm grateful for our incredible talent and my exceptional leadership team and with that I will turn things over to Christine.

Thank you Bob it's great to have you back on these calls.

Good afternoon, everyone.

Excluding certain items are companies diluted earnings per share for the first fiscal quarter of 2023 was 99 cents a decrease of seven cents versus the prior year as continued strength at our parks experiences and products business was more than offset by a year over year decline in our media entertainment and distributions.

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You heard earlier that we are embarking on a significant company wide cost reduction plan that we expect will reduce annualized non content related expenses by roughly $2.5 billion not including inflation.

In general we anticipate these reductions will be comprised of approximately 50 per cent marketing 30 per cent labor and 20 per cent technology procurement and other expenses.

Around $1 billion in this target was included in the guidance. We gave last quarter that fiscal 2023 segment operating income should grow in the high single digit percentage range, which is still our current expectation.

The bulk of the efficiencies we are realizing this year are related to reductions in marketing and head cap at demand.

The remaining portion of the target represents incremental SG&A and other operating expense savings, which will fully materialized by the end of fiscal 2024.

Longer term, we also expect to realize additional efficiencies in our content spending with an annualized savings target of approximately $3 billion, a future spending outside of sports.

We will share additional details with you as we move forward on realizing these efficiencies.

Bob also gave you some details earlier on the company's reorganization.

The new structure in leadership roles are effective immediately and we expect to transition to financial reporting under this structure by the end of the fiscal year at which point, we will provide recasts financials under our new segment.

Until then I'll be walking through our results under the existing segments.

Turning to parks experiences and products were thrilled with the results. We achieved this quarter with operating income increasing twenty-five percent versus the prior year to over $3 billion, reflecting increases at our domestic and international parks and experiences businesses.

At domestic parks and experiences significant revenue in operating income growth in the quarter was achieved despite purposefully reducing capacity during select peak holiday periods by approximately 20% versus pre pandemic levels in order to prioritize the guest experience.

Per capita guest spend at our domestic parks also showed strong ground.

Order to date park attendance at both Walt Disneyworld Disneyland resort are pacing about prior year and based on the reservation bookings, we expect to see this trend to continue.

Disney Cruise line was also and meaningful contributor to the year over year increase in domestic operating income, reflecting higher occupancy and the existing fleet as well as the Disney wish which generated positive operating income and its first full quarter of operations.

Domestic parks and experiences operating margins improved versus the prior year. Despite increased costs will inflation operations support and new guest offerings pressures, which we expect will persist into Q2 and beyond.

At International Parks and experiences higher year over year results were due to growth that Disneyland, Paris, and higher royalty revenue from Tokyo Disney Resort.

Partially offset by a decrease at Shanghai Disney Resort.

At Disneyland Paris, we remained pleased with the positive results receding from the substantial investment we've made there and.

Shanghai results reflect the fact that the resort was closed for roughly a month during Q1 fiscal 2023.

Moving onto our media and entertainment distributions segment operating income in the first quarter decreased by over $800 million versus the prior year.

Even by year over year declines across direct to consumer linear networks and content sales licensing another.

However, we delivered a significant improvement on a quarter over quarter basis at our direct to consumer business.

As we progress on our path towards profitability with Q1 operating losses, improving sequentially by over $400 million from Q4.

The sequential improvement at D. T C was driven by higher revenue and lower SG&A, Cos, partially offset by higher programming and production costs.

Notably in the first quarter, we meaningfully reduced DTC marketing expenses across all three categories content brand and performance.

At both E S P N plus and Hulu subscribers and <unk> grew sequentially with our poo growth, reflecting the impact of price increases that occurred in August and October respectively.

And Ah Disney plus course subscribers increased slightly in line with our prior guidance from $102.9 million in the fourth quarter to $104.3 million in Q1.

Disney plus core or decreased by 19 cents versus the prior quarter driven by an unfavourable foreign exchange impact and a higher mix up subscribers to our multi product offerings, partially offset by a benefit from the recent domestic price increase which occurred towards the end.

The first fiscal quarter.

There are a few factors worth mentioning that we expect will impact Disney plus core subscriber and our <unk> growth and Q2.

The Disney plus domestic price increase has been playing out as expected with only modestly higher churn, which may also negatively impact the physical second quarter, given the timing of the December price increase.

That impact in addition to slower than previously expected growth in some international markets suggest core Disney plus subs may grow only modestly and Q2 at a similar pace to the first quarter.

We have said before some growth will vary quarter to quarter, and we expect to see higher core subscriber growth towards the end of the fiscal year.

Disney plus core <unk> will continue to benefit in the second quarter from the domestic price increase.

And while it's only been two months since the launch of the Disney plus add tier we are pleased with the initial response, which includes continued demand from top tier advertisers.

As I mentioned last quarter, we do not expect the launch of the Disney plus adhere to provide a meaningful financial impact until later this fiscal year.

And like Bob said, we are reaffirming our guidance that Disney plus we will achieve profitability by the end of fiscal 2024.

No as I have mentioned before our expectations are built on certain assumptions around subscriber additions based on the attractiveness of our future content turn expectations the financial impact of the Disney plus add tier and price increases our ability to quickly execute on cause.

Rationalization, while preserving revenue and macroeconomic conditions, all of which while based on extensive internal analysis as well as recent experience provide a layer of uncertainty and our outlook.

We remain focused on showing incremental improvements in our DTC metrics and we will continue to provide transparency into our progress and key drivers.

And our prior earnings call. We noted that we expected the improvement in Q2 operating results at direct to consumer would be larger than the improvement in Q1.

We now expect Q2, DTC operating results to improve sequentially by approximately $200 million.

As improvements in the first quarter materialized more quickly than previously expected.

Additionally, our view on queue to now incorporates more challenging addressable advertising headwinds.

Moving on to linear networks first quarter operating income decreased by approximately $240 million versus the prior year.

Domestic channels operating income grew year over year, but that growth was more than offset by decreases at international channels.

The increase that domestic channels was due to higher results of cable Bob Broadcasting results were comparable to the prior year quarter.

Higher cable results were driven by lower programming and production costs, partially offset by decreases in advertising and affiliate revenue.

The decrease in programming and production costs reflect lower NFL in college football playoffs, or CFP right Cos.

The decline and NFL writes expense reflects the timing of costs under our new agreement compared to the prior NFL agreement and lower CFP writes costs were due to timing shifts recall that we had two fewer games in the first quarter of fiscal 2023 versus the prior year as those games.

Or shifted into Q2 this year.

The decrease in cable advertising revenue also reflects the CFP timing shift.

S. P N advertising revenue in the first quarter was down 4% year over year, but was roughly flat once suggested for the CFP shift.

And quarter to date domestic cash AD sales at ESPN are pacing slightly below prior year when the two additional CFP games are adjusted out.

Scatter pricing remains above upfront levels, although it has softened a bit in recent months. However, we are seeing solid advertiser interest for live events, such as the Oscars and demand across sports also remains solid.

Total domestic affiliate revenue in the first quarter increased by 1% from the prior year driven by six points of growth from contractual rate increases partially offset by a five point decline due to a decrease in subscribers.

International channels operating income decreased versus the prior year due to lower advertising revenue and unfavorable foreign exchange impact and a decrease in affiliate revenue, partially offset by a decrease in programming and production costs.

As a reminder, the first quarter held no IPL cricket matches versus 13 matches in the prior year due to COVID-19 related timing shifts.

Looking ahead to the fiscal second quarter, we expect linear networks operating income will decrease year over year by approximately $1 billion.

We expect Q2 will have the most challenging comparison for linear networks versus the prior year and anticipate a significantly lower decline in the back half of the year.

There are several factors impacting the queue to God that I'd like to walk through first recall that domestic linear networks operating income increased in Q1 versus the prior year benefiting from the timing of costs under a new agreement for the NFL and a timing impact for C. F P.

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These impacts will work against us and Q2 and as a result, ESPN is expected to account for approximately half of the 1 billion dollar operating income decrease.

Broadcasting and our other domestic cable networks will be adversely impacted in the second quarter by approximately $300 million driven primarily by headwinds in advertising and to a lesser extent affiliate revenue.

And international channels account for the remaining 200 million dollar decrease.

This includes timing impacts from BCCI cricket with eight additional matches versus the prior year other contractual rights cost increases and additional topline headwinds.

And are content sales licensing another operating results decreased versus the prior year by $114 million is higher theatrical results were more than offset by lower television spot operating income higher overhead cost and a decrease in home entertainment operating income.

These results came in below the guidance, we gave in November primarily due to softer than expected performance of certain theatrical releases.

In the second quarter, we believe that content sales licensing another operating results will be roughly breakeven.

Finally, before we conclude I'd like to say a few words about our focus on allocating capital and a disciplined imbalanced way.

As Bob mentioned over the years, we have invested in our businesses to drive growth in return meaningful capital to our shareholders.

Despite the impact of Covid, which had a significant adverse impact on the company's free cash flow our balance sheet is strong and supports ongoing investment in our businesses.

We still expect cash content spend companywide to remain in the low 30 billion dollar range for fiscal 2023.

The longer term contact cost reductions referenced earlier in the call or not expect it to impact this year's guidance range.

We also continued to invest in our parks and experiences globally and in other capital projects across the enterprise and expect that fiscal 2023 capital expenditures will total approximately $6 billion. This is lower than our prior guide a $6.7 billion, primarily due to <unk>.

Creases in Capex at our domestic parks, reflecting in part some timing shifts.

Like Bob mentioned, given our recovery from the pandemic strong balance sheet and commitment to cost cutting we believe will be on track to declare a modest dividend by the end of this calendar year.

The amount will likely be a small fraction of our pre COVID-19 dividend with the intention to increase it overtime as our earnings power grows.

And in terms of our current outlook as we sit here today, we still expect that revenue in segment operating income growth for this fiscal year will be in the high single digit percentage range and we look forward to updating you on our progress as we move forward.

I'd also like to note that shortly after today's call we will be posting a presentation on our investor Relations website, which will summarize many of the themes that we are discussing here today.

And with that I'll turn it back to Alexia and we would be happy to take your questions.

Thanks, Christine as we transition to the queue and I. We ask that you. Please try to limit yourself to one question in order to help us get too many ounces possible today and without operator, we're ready for the first question.

Thank you ma'am when I was a reminder, if you'd like to ask a question. Please press started in the one on your Touchtone phone and to remove herself from two please post starving to today's first question comes from Jessica risk or where it was very securities. Please go ahead.

Thank you so much.

Ah That's Christ Christie said, it's great to have you back.

Seems like a very different company than when you left you even though it was only a couple of years ago.

Given a cyclical but maybe more importantly, the secular challenges across all of your businesses linear film content competition et cetera.

And the restructuring what do you think of the quick fixes and we'll we'll take longer term to see the benefits of of some of these actions and on the $3 billion in cost cuts in content.

Largely a fewer titles and what does it mean for ultimate direct to consumer Martin's.

[noise] Jessica Thank you for welcoming me back let me take the second part of your question first.

We are going to take a really hard look at the cost for everything that we make those across television and film.

Because things in in a very competitive world have just simply gotten more expensive and that's something that is all.

Already underway here. In addition, we're going to look at the volume of what we make and with that in mind, we're going to be fairly aggressive it better curation. When it comes to general Entertainment because when you think about a general entertainment is generally undifferentiated as opposed to our core franchises in our brands, which.

Because of their differential and their quality of delivered higher returns for us over the years. So we think we have an opportunity to serve more aggressive curation to reduce our costs and the general entertainment side and in general and volume. In addition, the structure is now designed to.

Place responsibility of all international programming and investment and content in the hands of one unit. So that they can better decide the balance between what we make for global distribution and consumption and what we make for a local distribution and consumption with an eye toward possibly reducing.

Senses, there as well as we balance better obviously, all designed to deliver the profitability that we talked about delivering by the end of 24.

In terms of your first question.

Times have changed although.

In retrospect or and looking back at it not in an extraordinary way obviously, it's gotten more competitive the forces of disruption of only gotten greater.

And there are certain things certainly is a residual of COVID-19, they've just gotten tougher from a macro economic perspective.

That said, we're still a company that is focused on.

The activity at its highest form.

I Love. The fact that we are re linking the creative side of our business with the distribution and the monetization side of our business and I think by doing that we will see the impact of that reorganization fairly quickly.

But when I think about the secular change that we're going through generally speaking I like our hands, we have an ability to balance how we take our product to market with a legacy platforms, whether it's movie theaters or where multichannel television with of course, the streamers, we have and and by the way that helps us at a number of fronts, including advertising.

Monetization stronger marketing and so I think that when you focus on the company's assets in terms of our brands and our franchises, yes, it's a tough environment, but the combination of the restructuring and the fact that we've got these core brands, which when we get write creatively as we've seen time and time.

Come again, Sir.

Not only differentiates us but enables us to do.

Deliver fairly strong returns.

Okay. Thank you next.

Question and our next question comes from Ben Swinburne, where it's Morgan Stanley and please go ahead.

Thank you have a good afternoon.

Bob I'm sure one reaction you'll get today from all this news is you know the.

The future of television I think is viewed as being streamed with linear obviously declining I'm sure you generally agree with that trend. So how do you think about that [laughter] about your strategies you've laid out today in the context of that to make sure you're maximizing returns globally of the franchises that you felt.

And then I was just wondering maybe Christine on the parks business.

Really strong margins this quarter I'm really kind of a return to the kind of incremental margins, we're used to seeing it.

Didn't suddenly there's I think one time I just wanted to ask if this quarter is sort of emblematic of kind of how you see the rest of the year playing out from a trend point of view. Thank you both.

Thanks been nice to hear from you I've been watching this very carefully for a long time and what I what I'm talking about is the impact of technology is basically creating a huge authority shifts from the producer and the distributor to the consumers.

And as that authority has shifted it's made the traditional business more complicated more to more challenging and when you think about what streaming is I know we talked about this a lot as it related to multichannel television is the ultimate Ala Carte proposition for the consumer it gives us a consumer so much more authority than they ever had before.

Because in reality it gives them the ability to watch programs not channels not even bundles. When you think about it and because of your signing up in most cases for one month subscription you can sign up for one program pay a relatively small amount of money and then ended up basically unsubscribing that's tremendous.

Change and I think what's going on right now is that as the linear business continues to erode we've been basically eyes wide open on that Christine comment about some of the challenge related to that the streaming business, which I believe is the future and has been growing is not delivering basically the kind of profitability.

Bottom line results that they're linear business delivered for us over all over a few decades and so we're in a very interesting transition period, but one I think it was inevitably heading toward streaming. So what were the way we are basically contending with it we've alluded to it today already is.

And this I think is also directly related to a restructuring we're gonna rebalance a bit because those linear channels and movie theaters to still can provide us with significant amount of monetization cup of capability. They enable us to amortize the cost better over multiple platforms and create some marketing cloud and you think.

[noise] about it added elementary airs on a B C. And then it goes to Hulu. The demographic difference in age is tremendous it's like 60 years old or around I'm estimating on a b C. And then the thirties on Hulu. That's a perfect example, how the linear platforms, while they still have an audience and could help us monetize.

Can still be used effectively and we have that ability.

So we're going to monitor it very carefully we're not in any way stepping away from streaming it remains or a number one priority. It is in many respects our future, but we're not going to abandon the linear or the traditional platforms, while they can still be a benefit to us and our shareholders.

So then great to hear your voice and I'll address the parks question. So as I mentioned in my comments, we were really thrilled with the performance of parks in the quarter.

There were no one time items to call out, but the one thing I would mention is in pre previous quarters. We had mentioned that the recovery from the pandemic and our international parks was lagging domestic and in this quarter, we had very strong performance, especially a year over year from Disneyland Paris.

We had the opening of adventures campus over there in July and that is incredibly popular and driving attendance and we also have a new hotel that was actually an old hotel that was redone into the art of Marvel again, very popular and attracting a lot of.

Consumers to come out and experience that the other thing I mentioned was the strength at our <unk> royalty stream from Disneyland in Tokyo and the other thing not to forget is this quarter. Our first quarter of the year is seasonally one of our strongest when you look at it relative to other.

Quarters, but the year over year comparison.

That's an improvement and we feel great about our business going forward.

Thank you both.

Your next question. Our next question comes from Michael maintenance and SVP SBB Moffett Nathan. Thanks go ahead.

Thanks Welcome back Bob.

I am too the first is.

Go back to it.

The second investment day, you had it for streaming the company increased their Tam forecast their investment spending and kind of vision for Disney plus now that you've returned with more data in time.

What's it been here for Disney plus you know you don't want to give a foreign term targets I get that but.

What is the product vision is it a more narrow vision any type of a long term size and the investment and often profitability case.

The plots would be helpful. And then linear the bench question, a big part of the cost structure of sports costs, you decide to turn them lately, but when you think about going forward can you help us understand what will change going forward on sports rights investment turtle must have and not.

Necessarily must have X.

Well. The second question is you know we've locked in a number of deals already including some of the biggest ones, which is in college football with the SEC as well as where the NFL. The one that's looming as the as the N. B a I know that's on People's minds, which is a product that we've enjoyed having and hope to continue to enjoy having.

Because not only its volume, but its quality ESPN has been selective in the rights that they bought I've had long conversations about this with Jimmy Potaro and we've got some decisions that we have to make coming up not on something not anything, particularly large but on a few things and we're simply going to have to get more selective.

ESPN plus actually has grown nicely for us and it showed us that the E. S. P. N brand can be enjoyed and it can be expressed well as the streaming brand and I think that we're going to continue to look at that as a potential pivot for ESPN away from the.

The linear business, but we're not we're not gonna do that precipitously, we're not gonna do that until it really makes sense from an economic perspective.

On the first part of your question.

What what either what's changed or where are we headed from what was the second.

Investor Day, I think a few things first of all.

We were as a company and a global arms race for subscribers.

It was the.

The number of subscribers that have become kind of the primary measurements of success.

Not only hear the company by the among them in the investment community.

And in our zeal to go after subscribers I think we might have gotten a bit too aggressive in terms of our promotion and we're going to take a look at that I listed a number of things on the call. That's one of them I talked about pricing as well.

Another where we really have to look at.

Are we price incorrectly. It's interesting is Christine noted we took out our pricing up substantially on Disney plus and we didn't suffer any day mittimus. We only suffered at the minimum is loss of subs that tells US something it may also tell us that the promotion to chase subs that we've been fairly aggressive act globally wasn't.

Is it absolutely necessary. So pricing is definitely one thing promotion, obviously is tied to that.

It is also obvious to us as we can't get the profitability and turn the singer growth business without growing subs. So while we're taking off the table sub guidance, we're still going to look to grow subs. We just want to grow quality subs that are loyal and where we actually have an ability to continue to price effectively to those subs.

In addition, we're going to lean more into our franchises, our core franchises and our brands I talked about duration in general entertainment, we have to be better of Curating.

Disney and Pixar and Marvel in the Star Wars of it all as well and of course reduce costs on everything that we make because while we're extremely proud of what's on the screen.

It's gotten to a point, where it's extraordinarily expensive and we want all the quality we want the the quality on the screen, but we have to look at what they cost us. So we're going to continue to go after subs, but we're gonna be more judicious about how we do that we're going to look carefully at pricing, we're going to reduce costs. Both in content and of course infrastructure. There is a lot.

They were getting out there marketing is another area, where we're gonna try to rebalance marketing platform versus marketing of the programs.

Nielsen came out with something.

[noise] weeks ago that was stunning to us and that was at 10 of the top 15 movies streamed in the United States in 2022 or hours on that list was moorlands utopian frozen, but also turning red and then cut though that suggests to us that our brands and franchises work extremely well and streaming.

I mentioned, how we're khanda is forever has done as well so core brands and franchises more efficient pricing getting better marketing being a little bit more judicious it promotion all of those things.

We believe we're going to get to a church to turn this dream business or a growth business and one other thing the streaming business is going to continue to grow, albeit at the expense of linear programming, but consumption of television is not decreasing is actually going up.

Thank you my question.

Our next question comes from <unk> J P. Morgan. Please go ahead.

Hi, Thank you Bob.

Bob following up on Michael there's been a lot of talking last year about whether Disney should keep spin sell or trade ESPN does.

Is it now as a Standalone segment can you give us your view on the future of Disney in sports in particular, and maybe T V in general.

And a girl is ESPN to the company's future. Thanks.

Thank you Phil.

We are fairly certain that when we created this structure and broke ESPN add on its own that it would lead to questions. Like this we did not do it for that purpose actually ESPN is a differentiator for this company.

The best Sports brand in television is one of the best sports bread and sports. It continues to create real value for us is going through some obviously challenge a challenging times because of what's happened in linear programming, but the brand of ESPN is very healthy and the programming of ESPN is very healthy we just have to figure out how to <unk>.

Monetize it and are disrupting continuing.

Disrupting world that's it but we're we're not engaged in any conversations right now or considering a spin off of ESPN that had been done by the way in my absence and I'm told the company concluded after exploring it very carefully that it wasn't something the company wanted to do.

Thank your next question.

And our next question comes from Dr. Mitchell sudden with credit Suisse. Please go ahead.

Oh. Thanks, so much welcome followed by my welcome back Bob You know comment Bob.

There's some investor skepticism that theme park per caps and margins are elevated due to post pandemic benefits that might expire I'm curious you know.

[noise], you're viewed as a theme park division still have healthy growth prospects from.

From here, especially after you know pretty good quarter this quarter and what it seems to me that major growth drivers of all of the parks going forward. Thanks.

To hear your voice again, Doug.

We've been through many of these calls in the past.

Well the answer is yes on the theme parks in terms of their growth I'm very very bullish about our parks.

And not just because of the COVID-19 recovery, but to start with demand on the parks is extraordinary right now now.

Now, we could lean into that demand easily by letting more people in and buy more aggressively pricing. We don't think either would be smart because we let more people in is going to reduce guest experience. That's certainly not what we want and in fact, if you look at our results of this past holiday season, we actually reduced capacity certainly improve.

Guest experience and we're able to maintain profit just.

Profitability, but yeah.

We are very very successful or robust bottom line.

We're going to continue to look at opportunities like that which is essentially the simply get more creative in terms of managing the capacity that we have I'm going to come back to that in terms of growth, but let me also address the pricing size.

It's clear that some of our pricing initiatives, we're alienating to consumers I've always believed by the way that accessibility is a core value of the Disney brand, we were not perceived to be as accessible or is affordable to many segments. As we probably should have been so after basically paying hate to what we were hearing we started.

To address it in the steps that we took we're actually we're very very positive we got really great reaction to it.

Addition, and is tied to this is that we've put in place just basically more flexibility for the consumer in terms of how much it cost them to go.

An interesting laid out for you. If you look at the increase of the core ticket at Disneyland. It has not really increased that much maybe slightly ahead of inflation over the last few years.

One of the things that was interesting to me in coming in and examining our pricing is we're making that available to people for only 15 days a year. So if you're looking at a new pricing strategy. We made it available Vegas 50 days a year.

So we greatly increased accessibility to our lowest price and.

Really well received so we're going to manage capacity very very carefully some of that by the way has enabled us to essentially shift mix two from from annual pass holders too.

People, who may come just once in a lifetime or once they tend to be good customers of ours because of their per cap spending when they're there. That's really helpful. Some of the things that we put in place to manage basically annual pass holders was done to help us manage capacity without having to doing too much damage to the bottom line lastly.

<unk>, we have learned that when we invest in increasing capacity the star Wars lands would be a good example of that Pandora was a great example of that.

We can grow our business in fact, if you look at the results when we put Pandora at animal Kingdom from year to year. They were studying in terms of how many more people visited animal Kingdom I mentioned on the call that we're going to bring a version of avatar to Disneyland, we have other opportunities as well I've talked to Josh Tomorrow about this very recently like this morning.

Again to really look at all the great franchises, the company and see where we can invest to them in the parks to increase capacity well about preserving guest satisfaction.

Okay. I think we have time for one more question. Thanks.

Thank you and I was a little question come from Steven K O was Wells Fargo. Please go ahead.

Thanks, Bob I'll ask you a question that we've asked Christine a lot over the last year, which is you know you made the comment about E. S. P N plus expressing some success streaming in sports and there's probably know about 40 million homes, we've decided to not be in the bundle. So what do you need to see out there in the linear world to decide that in.

<unk> Ala Carte sports service and streaming should should be the big leap for Disney and then just a small one you mentioned about how a lot of content can amortize in places other than streaming you talked a lot today about cost cutting should we think about licensing is also being a potential sort of big profit pool over the next few years.

Thank you.

I'll take the second part first gave you answer the second part is yes, now when you say big I don't know yet we're not really there but.

When we bought Fox, we greatly enhanced our television production and film production capabilities, bringing into the company great talent in both the movie and the television side.

As I've talked about getting more aggressively Curating general entertainment by the way, we're not getting out of that business, but we're going to curated more we have opportunities using the great talent that we have to create for third parties and we're going to look at that very seriously I actually think there's a nice opportunity greater growth business for the company but.

Too soon to predict what that can be.

Regarding ESPN and when we might make the shift.

If you're asking me is the shift inevitable answer is yes, but I'm not going to give you any sense of when that could be because we have to do it obviously at a time that really makes sense for the bottom line and when people are just not there yet and that's not just about how many subscribers. We could get it's also about what is the pricing power of ESPN.

Which obviously ties to the menu of sports that that they've licensed.

Thank you.

Okay. Thanks for the question I want to thank everyone for joining today now it's at a reconciliation non-GAAP measures that refer to on this call. Thank God measures can be found in our Investor Relations Web site and May I also remind you that certain statements on this call, including financial estimates our statements about our plans guidance and expectations beliefs are.

Business prospects in other statements that are not historical nature may constitute forward looking statements under the new security laws.

We have we make these statements on the basis of our views and assumptions regarding future events in business performance at the time, we make them and we do not undertake any application update the statement forward looking statements are subject to a number of risks and uncertainties. An actual results may differ materially from the results expressed or implied in.

A variety of factors, including economic our industry factors execution risk, including in connection with our organizational structure and operate in changes cost savings and efficiencies workforce reductions and DTC business plan relating to contact the future subscribers and revenue growth and profitability.

For more information about key risk factors. Please refer to our Investor Relations website. The press release issued today the risks and uncertainties described in a Form 10-K Form 10-Q, another filing for the security Exchange Commission, we want to thank you all for joining us and wish everyone. A good rest of your day.

Thank you today's conference has now concluded we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Goodbye.

[noise].

[music].

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[music].

Good day and welcome to the Walt Disney Company's first quarter 2020 financial results Conference call.

All participants will be in listen only mode.

Should you need assistance places like only conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions.

To ask a question you May Press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over to CFO Jonny Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, it's my pleasure to welcome everybody to the Walt Disney Company's first quarter 2023 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 being webcast and a replay and transcript will also be made available on our website.

Joining me for today's call are Bob Iger, 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 question, we have a lot to get through today, but we'll do our best to answer as many questions. As we can so with that let me turn the call over to Bob to get started.

Thank you Alexia and good afternoon, everyone.

It's an extraordinary privilege to lead this remarkable company again, especially at the special moment in its history as we celebrate our centenary.

Cause I first became CEO in 2005, I have guided the Walt Disney company through two significant transformations.

First was to confer greater creative control and authority to our creative businesses and to focus on great brands and franchises.

It was also aimed at embracing new technologies and expanding internationally that ultimately led to the acquisition of Pixar Marvel and Lucasfilm.

Second transformation took place beginning in 2016, when we laid the foundation for Disney to become a true digital company.

As we were planning to launch our streaming platforms the opportunity arose to acquire numerous assets from 20, <unk> century Fox and.

And that acquisition gave us a bigger library with more franchises, a broader global reach and a talented experienced management team that enabled us to generate even more higher quality content.

In 2019, Disney plus launched with nearly 500 films and 7500 episodes of television from across the World with Disney.

Three years later its meteoric rise is considered one of the most successful rollouts in the history of the media business.

Now it's time for another transformation.

One that rationalize our enviable streaming business and puts it on a path to sustained growth and profitability.

While also reducing expenses to improve margins and returns and better positioning us to weather future disruption increased competition and global economic challenges.

We must also returned creativity to the center of the company increased accountability improve results and ensure the quality of our content and experiences.

Now the details.

Our company is fueled by storytelling and creativity and.

And virtually every dollar we earn every transaction every interaction where their consumers emanates from something creative.

And I've always believed that the best way to spur great creativity is to make sure that people who are managing the creative processes.

<unk> empowered.

Therefore, our new structure is aimed at returning greater authority to our creative leaders.

And making them accountable for how their content performs financially.

Our former structure suffered that link.

And must be restored.

Moving forward, our creative teams will determine what content we're making.

How it is distributed and monetized and how it gets marketed.

Imagine costs maximizing revenue and driving growth from the content being produced will be their responsibility.

Under our strategic reorganization, there will be three core business segments.

Disney Entertainment.

ESPN and Disney parks experiences and products.

Alan Bergman and Dana Walden will be co chairman of Disney Entertainment, which will include the Companys full portfolio of entertainment media and content businesses globally, including streaming.

Jimmy Pitaro will continue to serve as chairman of ESPN, which will include ESPN networks, ESPN, plus and our international sports channels.

And Josh Tomorrow will continue to be chairman of Disney parks experiences and products, which will include our theme parks resort destinations and cruise line as well as Disney as consumer products games and publishing businesses.

These organizational changes will be implemented immediately and we will begin reporting under the new business structure by the end of the fiscal year.

This reorganization will result in a more cost effective coordinated and streamline approach to our operations and we are committed to running our businesses more efficiently, especially in a challenging economic environment.

In that regard we are targeting five $5 billion of cost savings across the company.

First reductions to our non content costs will total roughly $2 $5 billion not adjusted for inflation.

$1 billion in savings is already underway and Christine will provide more details, but in general the savings will come from reductions in SG&A and other operating costs across the company.

To help achieve this we will be reducing our workforce by approximately 7000 jobs.

While this is necessary to address the challenges we're facing today I do not make this decision lightly.

I have enormous respect and appreciation for the talent and dedication of our employees worldwide and are mindful of the personal impact of these changes.

On the content side, we expect to deliver approximately $3 billion in savings over the next few years excluding sports.

Christine we will be providing more details during the call.

Turning to our streaming businesses I am proud of what we've been able to achieve since the launch of Disney plus just three years ago, we are delivering more content with greater quality in more ways in more places and to larger audiences.

Like many of our peers, we will no longer be providing long term subscriber guidance in order to move beyond an emphasis on short term quarterly metrics, although we will provide color on relevant drivers.

Instead, our priority is the enduring growth and profitability of our streaming business.

Our current forecast indicate Disney plus will hit profitability by the end of fiscal 2024, and achieving that remains our goal.

Since my return I have drilled down into every facet of the streaming business to determine how to achieve both profitability and growth.

And so with that goal in mind, we will focus even more on our core brands and franchises, which have consistently delivered higher returns, we will aggressively curate our general entertainment content.

We will reassess all markets, we have launched in and also determine the right balance between global and local content.

We will adjust our pricing strategy, including a full examination of our promotional strategies.

We will fine tune, our advertising initiatives on all streaming platforms.

We will improve our marketing better balancing platform and program marketing, while also leveraging our legacy distribution platforms for marketing and programming.

This may include greater use of legacy distribution opportunities to increase revenue and more effectively advertise content investment.

And as I've said before our new organizational structure will reestablish the direct link between content decisions and financial performance.

This is one of the most important steps, we can take to improve the economics of our streaming business.

There is a lot to accomplish but let me be clear. This is my number one priority. We are focused on the success of our streaming business and the return it generates for our shareholders long into the future.

Before I turn this over to Christine a few comments about the quarter.

James Cameron's avatar, the wastewater, which was easily the most successful film of the quarter has become the fourth biggest film of all time globally with close to $2 2 billion earned at the box office to date.

The global popularity of this film will result in the creation of more opportunities for fans to engage with the franchise, which they've been doing at Walt Disney World's Pandora the world of Avatar as well as in theaters globally and on Disney plus with a first films delivered very strong numbers.

And today I'm thrilled to announce that we will be bringing an exciting avatar experience to Disneyland.

We'll be sharing more details on that very soon.

Avatar represents yet another core franchise for the company.

As <unk> seen time and time again, we have a unique way of leveraging creative success across multiple businesses and territories and over long periods of time.

Speaking of our parks, we had an outstanding quarter in Q1, while we continued our purposeful efforts to control capacity to preserve guest experience.

Last month, we also announced some price adjustments at our parks, we're listening to guests feedback and we are continuously working to improve the quality and value of their experience.

We're also proud of our creative success as we led all studios with the most Academy Award nominations, including two best Picture nominations, 20th century Studios Avatar, the way of water and certified pictures the benches of inner Sharon.

Marvel's Black Panther will conduct forever received five Oscar nominations and in addition to an $840 million run at the box office.

Launched on Disney plus last week and it has quickly become one of the most successful Marvel films on the platform.

Looking ahead, we're excited about our fantastic lineup of new films coming to theaters. This year, starting with next week's release of Marvel's Ant man and the Wasp quantum ADM followed by other highly anticipated theatrical titles, including the little Mermaid Guardians of the Galaxy volume three Pixar as elemental.

Indiana, Jones, and the dialogue Destiny and Disney's haunted mansion.

Lucas films, Amanda Laura in the series that started it all for Disney plus we will be back at the beginning of March for its highly anticipated third season.

And today I am so pleased to announce that we have sequels in the works from our animation studios to some of our most popular franchises toy story frozen and zootopia.

I'll have more to share about these production soon but this is a great example of how we're leaning into our unrivaled brands and franchises.

The Walt Disney Company also one more Golden Globes, and any other entertainment company. This year, a total of nine including for Abbott Elementary. The first broadcast show to when a Golden Globe for best series in nearly a decade.

Without question, we have a world class television business that fuels, both our linear channels and direct to consumer services, especially with the assets acquired through the Fox transaction.

It goes without saying that the best shows lead to the most lucrative library and have the power to endure because of their quality. The Simpsons illustrates this perfectly Disney plus launched back in 2019 with more than 30 seasons and remains one of our top performers today.

Across the board our television business is second to none and that includes ABC news, which remains America's number one news network.

Power of ESPN brand also continues to deliver for us.

In calendar 'twenty, two ESPN linear ratings were up 8% overall and 14% in primetime and we are also growing rapidly across our digital platforms.

We're being selective in our rights renewals and continued to approach rights acquisition with discipline and a focus on supporting both sides of Espn's business traditional linear and digital.

ESPN is more than just a network and today. The team is harnessing innovative technology to deliver spectacular coverage and entertainment to audiences, who have a deep connection to the brand and content.

Now when it comes to investing in growth and returning capital to shareholders. We will take a balanced and disciplined approach as we did throughout my previous tenure as CEO. When we invested in our core businesses and acquired new ones bought back stock and paid a dividend to our shareholders.

As a result of the impact of the Covid pandemic, we made the decision to suspend the dividend in the spring of 2020.

Now that the pandemic impacts to our business are largely behind us we intend to ask the board to approve the reinstatement of a dividend by the end of the calendar year.

Our cost cutting initiatives will make this possible and while initially it will be a modest dividend, we hope to build upon it overtime.

Dan will provide more information on that.

And finally on the topic of succession. The board recently established a dedicated succession planning Committee. The committee is chaired by Mark Parker, who will become chairman of the Walt Disney Company's Board following our annual meeting.

I am excited to work with him in his new capacity and I'm grateful to our outgoing Board Chairman Susan Arnold for 15 years of tremendous service.

Obviously, theres a lot going on but as I said before I'm truly excited to be back and to lead this great company through this necessary transformation I'm grateful for our incredible talent and my exceptional leadership team and with that I will turn things over to Christine.

Thank you Bob its great to have you back on this call.

Good afternoon, everyone.

Excluding certain items, our company's diluted earnings per share for the first fiscal quarter of 2023 with 99%.

A decrease of 7% versus the prior year as continued strength at our parks experiences and products business was more than offset by a year over year decline and our media entertainment and distribution segment.

Heard earlier that we are embarking on a significant company wide cost reduction plan that we expect will reduce annualized non content related expenses by roughly $2 5 billion not including inflation.

In general we anticipate these reductions will be comprised of approximately 50% marketing, 30% labor and 20% technology procurement and other expenses.

Around $1 billion of this target was included in the guidance. We gave last quarter that fiscal 2023 segment operating income should grow in the high single digit percentage range, which is still our current expectation.

The bulk of the efficiencies we are realizing this year are related to reductions in marketing and head count at demand.

The remaining portion of the target represents incremental SG&A and other operating expense savings, which will fully materialize by the end of fiscal 2024.

Longer term, we also expect to realize additional efficiencies in our content spending with an annualized savings target of approximately $3 billion.

Future spending outside of sports.

We will share additional details with you as we move forward on realizing these efficiencies.

Bob also gave you some details earlier on the Companys reorganization.

The new structure and leadership roles are effective immediately and we expect to transition to financial reporting under this structure by the end of the fiscal year at which point, we will provide recast financials under our new segment.

Until then I'll be walking through our results under the existing segment.

Turning to parks experiences and products, we're thrilled with the results. We achieved this quarter with operating income increasing 25% versus the prior year to over $3 billion, reflecting increases at our domestic and international parks and experiences businesses.

At domestic parks and experiences significant revenue and operating income growth in the quarter was achieved despite purposefully reducing capacity during select peak holiday periods by approximately 20% versus pre pandemic levels in order to prioritize the guest experience.

Per capita guest spend at our domestic parks also showed strong growth.

Quarter to date park attendance at both Walt Disney World and Disneyland resort are pacing above prior year and based on reservation bookings, we expect to see this trend continue.

Disney Cruise line was also a meaningful contributor to the year over year increase in domestic operating income, reflecting higher occupancy in the existing fleet as well as the Disney wish which generated positive operating income in its first full quarter of operations.

Domestic parks and experiences operating margins improved versus the prior year.

<unk> increased costs from inflation operation support and new guest offerings pressures, which we expect will persist into Q2 and beyond.

At International Parks and experiences higher year over year results were due to growth at Disneyland Paris.

Higher royalty revenue from Tokyo Disney Resort.

Actually offset by a decrease at Shanghai Disney Resort.

Disneyland Paris, we remain pleased with the positive results, we're seeing from the substantial investments we've made there.

And at Shanghai results reflect the fact that the resort was closed for roughly a month during Q1 of fiscal 2023.

Moving on to our media and entertainment distribution segment operating income in the first quarter decreased by over $800 million versus the prior year.

Driven by year over year declines across direct to consumer linear networks and content sales licensing and other.

However, we delivered a significant improvement on a quarter over quarter basis at our direct to consumer business as we progress on our path towards profitability with Q1 operating losses, improving sequentially by over $400 million from Q4.

The sequential improvement at DTC was driven by higher revenue and lower SG&A costs, partially offset by higher programming and production costs.

Notably in the first quarter, we meaningfully reduced DTC marketing expenses across all three categories content brand and performance.

At both ESPN, plus and Hulu subscribers and <unk> grew sequentially with our <unk> growth, reflecting the impact of price increases that occurred in August and October respectively.

And that Disney plus core subscribers increased slightly in line with our prior guidance from $102 9 million in the fourth quarter to $104 3 million in Q1.

Disney plus core <unk> decreased by 19% versus the prior quarter, driven by an unfavorable foreign exchange impact and a higher mix of subscribers to our multi product offerings, partially offset by a benefit from the recent domestic price increase which occurred towards the end.

For the first fiscal quarter.

There are a few factors worth mentioning that we expect will impact Disney plus core subscriber and <unk> growth in Q2.

The Disney plus domestic price increase has been playing out as expected with only modestly higher churn, which may also negatively impact the fiscal second quarter, given the timing of the December price increase.

That impact in addition to slower than previously expected growth in some international markets suggest core Disney plus subs may grow only modestly in Q2 at a similar pace to the first quarter.

As we have said before sub growth will vary quarter to quarter, and we expect to see higher core subscriber growth towards the end of the fiscal year.

Disney plus core <unk> will continue to benefit in the second quarter from the domestic price increase.

While it's only been two months since the launch of the Disney plus add tier we are pleased with the initial response, which includes continued demand from top tier advertisers.

As I mentioned last quarter, we do not expect the launch of the Disney plus add tier to provide a meaningful financial impact until later this fiscal year.

And like Bob said, we are reaffirming our guidance that Disney plus will achieve profitability by the end of fiscal 2024.

Although as I have mentioned before our expectations are built on certain assumptions around subscriber additions based on the attractiveness of our future content.

<unk> expectations, the financial impact of the Disney plus add tier and price increases our ability to quickly execute on cost rationalization, while preserving revenue and macroeconomic conditions all of which was based on extensive internal analysis as well as recent experience.

Provide a layer of uncertainty in our outlook.

We remain focused on showing incremental improvements and our DTC metrics and we will continue to provide transparency into our progress and key drivers.

In our prior earnings call. We noted that we expected the improvement in Q2 operating results at direct to consumer would be larger than the improvement in Q1.

We now expect Q2, DTC operating results to improve sequentially by approximately $200 million.

As improvements in the first quarter materialized more quickly than previously expected.

Additionally, our view on Q2 now incorporates more challenging addressable advertising headwinds.

Moving on to linear networks first quarter operating income decreased by approximately $240 million versus the prior year domestic channels operating income grew year over year, but that growth was more than offset by decreases at international channels.

The increase of domestic channels was due to higher results of cable while broadcasting results were comparable to the prior year quarter.

Higher cable results were driven by lower programming and production costs, partially offset by decreases in advertising and affiliate revenue.

The decrease in programming and production costs reflect lower NFL and college football playoff or CFP rights costs.

The decline in NFL rights expense reflects the timing of costs under our new agreement compared to the prior NFL agreement and lower CFP rights costs were due to timing shifts.

Call that we had two fewer games in the first quarter of fiscal 2023 versus the prior year as those games were shifted into Q2 this year.

The decrease in cable advertising revenue also reflects the CFP timing shift.

ESPN advertising revenue in the first quarter was down 4% year over year, but was roughly flat once adjusted for the CFP shift.

And quarter to date domestic cash AD sales at ESPN are pacing slightly below prior year when the two additional CFP games are adjusted out.

Scatter pricing remains above upfront levels, although it has softened a bit in recent months. However, we are seeing solid advertiser interest for live events, such as the Oscars and demand across sports also remains solid.

Total domestic affiliate revenue in the first quarter increased by 1% from the prior year driven by six points of growth from contractual rate increases partially offset by a five point decline due to a decrease in subscribers.

International channels operating income decrease versus the prior year due to lower advertising revenue and <unk>.

Unfavorable foreign exchange impact and a decrease in affiliate revenue, partially offset by a decrease in programming and production costs.

As a reminder, the first quarter held no IPL cricket matches versus 13 matches in the prior year due to COVID-19 related timing shifts.

Looking ahead to the fiscal second quarter, we expect linear networks operating income will decrease year over year by approximately $1 billion.

We expect Q2 will have the most challenging comparison for linear networks versus the prior year and anticipate a significantly lower decline in the back half of the year.

There are several factors impacting the Q2 guide that I'd like to walk through first.

Recall that domestic linear networks operating income increased in Q1 versus the prior year benefiting from the timing of costs under a new agreement for the NFL and a timing impact for CFP.

These impacts will work against us in Q2, and as a result, ESPN is expected to account for approximately half of the $1 billion operating income decrease.

Broadcasting and our other domestic cable networks will be adversely impacted in the second quarter by approximately $300 million driven primarily by headwinds in advertising and to a lesser extent.

Affiliate revenue.

And international channels account for the remaining $200 million decrease this includes timing impacts from BCCI cricket with eight additional matches versus the prior year other contractual rights cost increases and additional topline headwinds.

And our content sales licensing and other operating results decreased versus the prior year by $114 million as higher theatrical results were more than offset by lower television asphalt operating income higher overhead costs and a decrease in home entertainment operating income.

These results came in below the guidance, we gave in November primarily due to softer than expected performance of certain theatrical releases.

In the second quarter, we believe that content sales licensing and other operating results will be roughly breakeven.

Finally, before we conclude I would like to say a few words about our focus on allocating capital in a disciplined and balanced way.

As Bob mentioned over the years, we have invested in our businesses to drive growth and return meaningful capital to our shareholders.

Despite the impact of Covid, which had a significant adverse impact on the company's free cash flow our balance sheet is strong and supports ongoing investment in our businesses.

We still expect cash content spend companywide to remain in the low $30 billion range for fiscal 2023.

The longer term content cost reductions referenced earlier in the call are not expected to impact this year's guidance range.

We also continued to invest in our parks and experiences globally and in other capital projects across the enterprise and expect that fiscal 2023 capital expenditures will total approximately $6 billion.

This is lower than our prior guide of $6 7 billion, primarily due to decreases in capex at our domestic parks, reflecting in part some timing shifts.

Like Bob mentioned, given our recovery from the pandemic strong balance sheet and commitment to cost cutting we believe we'll be on track to declare a modest dividend by the end of this calendar year.

Mt will likely be a small fraction of our pre COVID-19 dividend with the intention to increase it over time as our earnings power growth.

And in terms of our current outlook as we sit here today, we still expect that revenue and segment operating income growth for this fiscal year will be in the high single digit percentage range and we look forward to updating you on our progress as we move forward.

I'd also like to note that shortly after today's call we will be posting a presentation on our investor Relations website, which will summarize many of the themes that we're discussing here today.

With that I'll turn it back to Alexia and we would be happy to take your questions.

Thanks, Christine as we transition to the Q&A, we ask that you. Please try to limit yourself to one question in order to help us get to as many ounces possible today and.

That operator, we're ready for the first question. Thank.

Thank you ma'am and as a reminder, if you'd like to ask a question. Please press Star then one on your Touchtone phone and to remove yourself from queue. Please press Star then two today's first question comes from Jessica Reif Ehrlich with Bofa Securities. Please go ahead. Thank.

Thank you so much.

Hi, Bob and.

As Christine said, it's great to have you back it.

It seems like a very different company than when you left even though it is only a couple of years ago.

Given the cyclical, but maybe more importantly, the secular challenges across all of your businesses linear film content competition et cetera.

And the restructuring.

What do you think of the quick fixes and what will take longer term to see the benefits of some of these actions.

On the $3 billion and cost cuts and content.

That largely fewer titles and what does it mean for ultimate direct to consumer margins.

Jessica Thank you for welcoming me back let me take the second part of your question first.

We are going to take a really hard look at the cost for everything that we make most across TV and film.

Because things in a very competitive world have just simply gotten more expensive and thats something that is already underway. Here. In addition, we're going to look at the volume of what we make and with that in mind, we're going to be fairly aggressive at better curation. When it comes to general entertainment because when you think about.

General Entertainment is generally undifferentiated as opposed to our core franchises in our brands, which because of their default ratio and their quality of delivered higher returns for us over the years. So we think we have an opportunity to through more aggressive curation to reduce some of our costs.

And the General Entertainment side, and then general in volume. In addition, the structure is now designed to place responsibility of all international programming investment in content in the hands of one unit. So that they can better decide the balance between what we make for global.

<unk> consumption and what we make for local distribution and consumption with an eye toward possibly reducing expenses there as well as we balance better obviously, all designed to deliver the profitability that we talked about delivering by the end of 'twenty four.

Your first question.

Indeed.

<unk> have changed although.

In retrospect or in looking back at it not in an extraordinary way, obviously, it's gotten more competitive.

Sources of disruption have only gotten greater.

There are certain things certainly is a residual of COVID-19, they've just gotten tougher from a macroeconomic perspective.

That said, we're still a company that is focused on.

Creativity in its highest form.

I Love the fact that we are re linking.

The creative side of our business with the distribution and the monetization side of our business and I think by doing that we will see the impact of that reorganization fairly quickly.

But when I think about the secular change that we're going through generally speaking I like our hand, we have an ability to balance how we take our product to market.

Our legacy platforms, whether its movie theaters or we're multichannel television with of course, the streamers, we have and by the way that helps us in a number of fronts, including advertising monetization stronger marketing and so I think when you focus on the Companys assets in terms of our brands and our franchises yes.

A tough environment, but the combination of the restructuring and the fact that we've got these core brands, which when we get right creatively as we've seen time and time again.

Not only differentiate us but enables us to deliver.

Deliver fairly strong returns.

Thank you thank.

Thank you next question and our next question comes from Ben Swinburne with Morgan Stanley. Please go ahead.

Thank you good afternoon.

Bob I am sure one reaction youll get today from all of this news is the future of television I think is viewed as being streamed with linear obviously declining I am sure you generally agree with that.

Brent.

You think about that.

About your strategy as you've laid out today in the context of that to make sure you're maximizing the returns globally of the franchises that you've built.

And then I was just wondering maybe Christine on the parks business really strong margins. This quarter really kind of the returns of the kind of incremental margins. We're used to seeing didnt suddenly there is I think one time I just wanted to ask if this quarter is sort of emblematic of kind of how you see the rest of the year playing out from a trend point of view. Thank you Bob.

Thanks, Ben Nice to hear from you.

<unk> been watching this very carefully for a long time what.

What I am talking about is the impact of technology is basically creating a huge authority shifts from the producer and the distributor to the consumer.

And as that authority has shifted its made the traditional business more complicated more to more challenging and when you think about what streaming is we talked about this a lot as it related to multichannel television is the ultimate Ala card proposition for the consumer it gives the consumer so much more authority than they ever had before.

Because in reality it gives them the ability to watch programs not channels not even bundle when you think about it and because youre signing up in most cases for one month subscription you can sign up for one program pay a relatively small amount of money and then ended up basically unsubscribing.

Tremendous change and I think what's going on right now is that as the linear business continues to erode and we've been basically eyes wide open on that Kristine commented about some of the challenges related to that the streaming business, which I believe is the future and has been growing is not delivering basically the kind of.

Profitability of Bottomline results that the linear business delivered for us over all over a few decades and so we're in a very interesting transition period, but one I think it was inevitably heading toward streaming so.

The way, we're basically contending with it and we've alluded to it today already is and this I think is also directly related to our restructuring we're going to rebalance a bit because those linear channels and movie theaters to still can provide us with significant amount of monetization capability they enable us.

To amortize the costs better over multiple platforms and create some marketing cloud and you think about it avid elementary Arizona ABC then it goes to Hulu the demographic difference in age is tremendous it's like.

60 years old or around I'm estimating on ABC and then the third is on Hulu. That's a perfect example of how the linear platforms, while they still have an audience and can help us monetize can still be used effectively and we have that ability and so we're going to monitor it very carefully we're not in any way.

Shifting away from streaming it remains our number one priority. It is in many respects our future, but we're not going to abandon the linear or the traditional platforms, while they can still be a benefit to us and our shareholders.

So then great to hear your voice and I'll address the parks question, so as I.

And in my comments, we were really thrilled with the performance of <unk>.

<unk> in the quarter.

There were no one time items to call out, but the one thing I would mention.

As in previous quarters, we had mentioned that the recovery from the pandemic in our international parks.

Lagging domestic and in this quarter, we had very strong performance, especially year over year from Disneyland Paris.

We had the opening of Avengers campus over there in July and that.

It is incredibly popular and driving attendance and we also have a new hotel that was actually an old hotel that was redone into the art of Marvell again, very popular and attracting a lot of consumers to come out and experience that the other thing I mentioned was.

This strength at our <unk> royalty stream from Disneyland in Tokyo, and the other thing not to forget is this quarter or first quarter of the year is seasonally one of our strongest when you look at it relative to other quarters, but the year over year comparison.

With an improvement and we feel great about our business going forward.

Thank you boss.

Thank you. Your next question. Our next question today comes from Michael Nathanson SVP VEB Moffett Nathanson. Please go ahead.

Welcome back Bob.

Yeah.

I have two the first is when you go back to.

The second investment day, you had for streaming the company increased their Tam forecast their investment spending and kind of the vision for Disney plus now that you've returned with more data and time.

What's the vision for Disney plus.

You don't want to give us long term targets I get that but.

What is the product vision is at a more narrow vision.

We have a long term size of the investment in the orphan profitability case of D. Plus will be helpful. And then on linear the bench question, a big part of the cost structure of sports costs, you've signed to turn them lately, but when you think about going forward can you help us understand what will change going forward on sports rights investment turtle must have and not necessarily Mustang.

Thanks.

Well. The second question is you know we've locked in a number of deals already including some of the biggest ones versus in college football with the SEC as well as with the NFL.

That's looming as the NDA I know that's on People's minds, which is a product that we've enjoyed having and hope to continue to enjoy having because not only it's volume but its quality.

ESPN has been selective and the rights that they bought.

It had long conversations about this with Jimmy Pitaro and we've got some decisions that we have to make coming up not on something not anything, particularly large but on a few things and we're simply going to have to get more selective.

ASP plus actually has grown nicely for us and it's shown us that the ESPN brand can be enjoyed and it can be expressed well as a streaming brand and I think that we are going to continue to look at that as a potential pivot for ESPN away from the.

The linear business, but we're not we're not going to do that precipitously, we're not going to do that until it really makes sense from an economic perspective.

On the first part of your question.

Either what's changed or where are we headed from what was the second.

Investor Day, I think a few things first of all.

We were as a company and a global arms race for subscribers.

It was.

The number of subscribers that have become kind of the primary measurement of success.

Not only here in the company by the among the investment community.

And in our zeal to go after subscribers I think we might have gotten a bit too aggressive in terms of our promotion and we're going to take a look at that I listed a number of things on the call. That's one of them I talked about pricing as well that's another where we really have to look at.

Are we pricing correctly, it's interesting as Christine noted, we took our pricing up substantially on Disney plus and we didn't suffer any de Minimis. We only suffered a de minimis loss of subs that tells US something it may also tell us that the promotion to chase subs that we've been fairly aggressive at globally was it.

It wasn't absolutely necessary.

Pricing is definitely one thing promotion, obviously is tied to that.

It is also obvious to us as we can't get the profitability and turn this into a growth business without growing subs. So while we're taking off the table sub guidance, which.

Still going to look to grow subs, we just want to grow quality subs that are loyal and where we actually have an ability to continue to price effectively to those subs. In addition, we're going to lean more into our franchises our core franchises and our brands I talked about duration in general entertainment, we have to be better at Curating.

Disney and Pixar and Marvel and Star Wars of at all as well and of course reduce costs on everything that we make because while we're extremely proud of what's on the screen.

It's gotten to a point, where it's extraordinarily expensive and we want all the quality we want the quality on the screen, but we have to look at what they cost us. So we're going to continue to go after subs, but we're going to be more judicious about how we do that we're going to look carefully at pricing, we're going to reduce costs. Both in content and of course infrastructure. There is a lot.

That we're getting out there marketing is another area, we're going to try to rebalance marketing of a platform versus marketing of the programs.

Nielsen came out with something a few weeks ago that was stunning to us and that was the 10 of the top 15 movie streamed in the United States in 2022 hours on that list was moana and zootopia and frozen, but also turning red and then condo that suggests to us that our brands and franchises.

Work extremely well in streaming I mentioned, how we're condos forever has done as well so core brands and franchises more efficient pricing getting better marketing being a little bit more judicious at promotion all of those things is how we believe we're going to get to.

Turn the stream business a growth business and one other thing the streaming business is going to continue to grow, albeit at the expense of linear programming, but consumption of TV is not decreasing is actually going up.