Q3 2023 The Walt Disney Company Earnings Call
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Ladies and gentlemen, thank you for joining today's Walt Disney Company third quarter 2023 financial results Conference call.
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Good afternoon, and welcome to the Walt Disney Company third quarter 2023 financial results Conference call all participants will be in a listen only mode.
Need assistance, please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please.
Please also note today's event is being recorded.
At this time I'd like to turn the floor over to Alexia could Ronnie.
They've vice President of Investor Relations. Please go ahead.
Good afternoon, it's my pleasure to welcome everybody to the Walt Disney Company's third quarter 2023 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www 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 Kevin Lansberry interim Chief Financial Officer.
Following comments from Bob and Kevin we will be happy to take some of your questions. So with that let me turn the call over to Bob to get started.
Thanks, Alexia and good afternoon.
The eight months since I returned we've undertaken an unprecedented transformation of Disney in this quarter's earnings reflects some of what we've accomplished.
First the company was completely restructured restoring creativity to the center of our business.
We made important management changes and efficiency improvements to create a more cost effective coordinated and streamlined approach to our operations.
We aggressively reduced costs across the enterprise and we're on track to exceed our initial goal of $5 $5 billion in savings.
And perhaps most importantly, we have improved our DTC operating income by roughly $1 billion in just three quarters as we continue to work toward achieving DTC profitability by the end of fiscal 2024.
I am pleased with how much we've gotten done in such a short period of time, but I also know we have a lot more to do.
Before I turn the call over to Kevin Lansberry, our interim CFO I'd like to elaborate on the state of our company and the transformative work we're still undertaking.
As I have said before our progress will not always be linear, but despite near term headwinds I'm incredibly confident in Disney's long term trajectory because of the work we've done the team we have in place and because of Disney's core intellectual property Foundation.
Moving forward I believe three businesses will drive the greatest growth and value creation over the next five years.
They are our film studios, our parks business and streaming all of which are inextricably linked to our brands and franchises.
Looking to Disney Entertainment Studios, we're focused on improving the quality of our films and on better economics, not just reducing the number of titles we release, but also the cost per title.
And we're maximizing the full impact of our titles by embracing the multiple distribution windows at our disposal, enabling consumers to access ore content in multiple ways.
For example, avatar the wastewater which is now the third highest grossing film of all time is also on track to be the biggest ever electronic home video release for Disney domestically.
Certain other titles will be sold and the download on window as well.
By focusing on big franchises in Tentpole films, we're able to generate interest in our existing library. For example, we're seeing tremendous engagement on Disney plus with the previous Guardians of the Galaxy films, the original Avatar and the first four Indiana Jones movies.
But the value of our Disney Entertainment Studios and the reason this will be a key growth business for us.
<unk> far beyond their library, and new releases, what sets Disney apart or the numerous ways, we're able to reach consumers with the stories and characters they love, including in our parks and resorts.
We will be opening new frozen theme lands at Hong Kong, Disneyland and Walt Disney Studios Park in Paris, as well as Zootopia themed land at Shanghai Disney Resort.
And later down the road, we will be bringing in avatar experience to Disneyland reinforcing the unrivaled worldwide appeal of our brands and franchises.
Our parks and experienced segment overall has had an impressive streak and we will continue to be a key growth engine for the company, even as we navigate the cycles that come with operating this business.
Our cruise line in particular showed strong revenue and operating income growth in the third quarter current Q4 booked occupancy for our existing fleet of five ships is at 98%.
We'll be expanding our fleet by adding two more ships in fiscal 'twenty five and another in fiscal 'twenty six nearly doubling our worldwide capacity.
In addition to our cruise line strong segment results for the quarter were driven by solid performance at our International Parks. We also saw continued strength at Disneyland resort.
In our Asia parks had been doing exceptionally well reinforcing a clear opportunity for continued growth.
Both Shanghai Disney Resort, and Hong Kong Disneyland have experienced stronger than expected recoveries from the pandemic and in Q3. They both grew meaningfully in revenue operating income and attendance.
We saw softer performance at Walt Disney World from the prior year coming off of our highly successful 15th anniversary celebration.
Also as post Covid pent up demand continues to level off in Florida local tax data shows evidence of some softening in several major Florida tourism markets.
And the strong dollar is expected to continue tamping down international visitation to the state.
However, Walt Disney World is still performing well above pre COVID-19 levels.
21% higher in revenue and 29% higher than operating income compared to fiscal 2019, adjusting for star cruiser accelerated depreciation.
And following a number of recent changes we've implemented we continue to see positive guest experience ratings in our theme parks, including Walt Disney World and positive indicators for guests looking to book future visits. This includes strong demand for our newly return annual passes.
We're making numerous investments globally to grow our parks business over the next five years and I'm very optimistic about the future of this business over the long term.
The third area that will drive growth and value creation for Disney is our direct to consumer business.
When you consider our path to profitability and streaming it's important to remember where we started and how we've adapted based on what we've learned.
We overachieve with massive subscriber growth for Disney plus out of the gate.
And we leaned into a spending level to fuel subscriber growth, which had been the key measure of success for many.
All of this happened, while we were still determining the right strategies for pricing marketing content and specific international market investments.
However, since my return we've reset the whole business around economics designed to deliver significant sustained profitability.
We're prioritizing the strength of our brands and franchises.
We're rationalizing the volume of content, we make what we spend and what markets we invest in.
We're deploying the technology necessary to both improve the user experience as well as the economics of this business.
We're harnessing windowing opportunities perfecting, our pricing and marketing strategies maximizing our enormous advertising potential.
And we're making extensive hulu content available to bundle subscribers via Disney plus.
As I announced last quarter, we're moving closer toward a more unified one app experience domestically to pair high quality General entertainment with content from our popular brands and franchises for our bundled subscribers. It's.
It's a formula for success that we have already proven in international markets with Aerostar offering on Disney plus.
We see a future where consumers can access even more of the companys streaming content all in one place, resulting in higher user engagement lower churn and greater opportunities for advertisers.
Also very optimistic about the long term advertising potential of this business.
Even amid a challenging AD market. This quarter, we began seeing early signs of improvement and I am pleased to announce that as of the end of Q3, we've signed up $3 3 million subscribers to our AD supported Disney plus option.
Since its inception, 40% of new Disney plus subscribers are choosing an AD supported product.
On our pricing strategy. This year alone we have raised prices in nearly 50 countries around the world to better reflect the value of our product offerings and the impact on churn and retention has outperformed our expectations.
Later today, we will release details regarding upcoming streaming price increases.
I am pleased to share that our AD supported Disney plus subscription offerings will become available in Canada and in select markets across Europe , beginning November one.
While a new AD free bundled subscription plan, featuring Disney plus and Hulu will be available in the U S. On September six.
Maintaining access to our content for us broaden audience as possible is top of mind for us, which is why pricing for our Standalone AD supported Disney plus and Hulu offerings will remain unchanged.
I'd also like to note that we are actively exploring ways to address account sharing and the best options for paying subscribers to share their accounts with friends and family.
Later this year, we will begin to update our subscriber agreements with additional terms and are sharing policies and we will rollout tactics to drive monetization sometime in 2024.
Our DTC ambitions also extend to our sports business, taking our ESPN flagship channels direct to consumer is not a matter of if but when and the team is hard at work looking at all components of this decision, including pricing and timing.
It's interesting to note that ratings continue to increase on ESPN main linear channel, even as cord cutting has accelerated.
This rating strength creates tremendous advertising potential across the board.
Our total domestic sports advertising revenue per linear and addressable is up 10% versus the prior year adjusted for comparability, which speaks to the fact that the sports business stands tall and remains a good value proposition.
We believe in the power of sports and the unique ability to convene and engage audiences.
Yesterday, It was announced that ESPN has entered into an exclusive licensing arrangement with pen entertainment to further extend the ESPN brand into the growing sports betting marketplace.
This licensing deal will offer a compelling new experience for sports fans that will enhance consumer engagement. We're excited to offer this to the many fans who have long been asking for it.
Overall, we're considering potential strategic partnerships for ESPN looking at distribution technology marketing and content opportunities, where we retain control of ESPN.
We've received notable interest from many different entities and we look forward to sharing more details at a later date, we were further along in this process.
Looking to our broader linear business, while linear remains highly profitable for Disney today, the trends being fueled by cord cutting or unmistakable.
And as I've stated before we're thinking expansively and considering a variety of strategic options.
However, we're fortunate to have an array of extremely productive TV studios that we will rely on to continue providing exceptional content for audiences well into the future.
And speaking of the content, we create I'd like to say a few words about the ongoing strikes.
Nothing is more important to this company and its relationships with the creative community and that includes actors writers animators directors and producers I have deep respect and appreciation for all those who are vital to the extraordinary creative engine that drives this company and our industry.
And it is my fervent hope that we quickly find solutions to the issues that have kept to support these past few months and I am personally committed to working to achieve this result.
In closing I returned to Disney in November and I've agreed to stay on longer because there is more to accomplish before our transformation is complete and because I want to ensure a successful transition for my successor and.
In spite of a challenging environment in the near term I am overwhelmingly bullish about Disney's future for the reasons I shared at the beginning of this call. The work we've done over these past eight months, our core foundation of creative excellence and iconic brands and franchises.
And because of the unrivaled talent, we have at every level here at Disney.
I have the highest confidence in our leadership team today and I'm enormously proud of the ways. Each of them is helping steer the company through this moment of great change.
And with that I will turn things over to Kevin.
Thanks, Bob it's good to be here and good afternoon, everyone.
Our fiscal third quarter diluted earnings per share, excluding certain items were $1 <unk> a decrease of six versus the prior year.
In the coming months, we will be presenting recast financials in line with our new reorganized segments, because the entertainment ESPN and parks experiences and products.
Today, we will be the last earnings call, where we will discuss our numbers under the existing structure.
Now turning to this quarter's results.
Starting off with direct to consumer as Bob referenced earlier, we've improved direct to consumer operating results by $1 billion in just three quarters.
Q3, operating losses improved by approximately $150 million versus the prior quarter and by approximately $550 million versus the prior year.
These results outperformed the guidance, we gave on the last earnings call largely due to lower than expected expenses, including from realizing SG&A savings sooner than initially expected.
Disney plus core subscribers grew by nearly 800000 during the third quarter in line with the commentary we made at our last earnings call with international growth more than offsetting modest domestic net losses.
As Bob mentioned, our progress will vary from quarter to quarter, and we are more focused on overall economics versus pure sub growth.
But currently we do expect that in the fourth quarter, we will see core Disney plus net adds rebound with growth both domestically and internationally.
Disney plus core <unk> increased sequentially by 11.
Driven by higher per subscriber advertising revenue domestically as well as price increases in certain international markets.
With over 40% of gross adds opting for the AD tier big domestic Disney plus add tier is continuing to improve our ARPA.
And we look forward to the additional market launches announced today.
Which should serve as a stepping stone on our path to profitability.
Disney plus Hot Star subscribers declined this quarter as we adjusted our product from one centered around the IPL to one more balanced with other sports.
And the entertainment offerings.
I would also note that this business with its significantly lower <unk> compared to the core Disney plus is not a material component of our overall DTC financial results. We will therefore continue to focus our commentary on the core Disney plus product.
Hulu and ESPN plus subscribers were roughly comparable to Q2.
Hulu remained profitable in the third quarter with advertising revenue increasing versus the second quarter.
Benefiting sequentially from a higher sell through rate.
In Q4, we expect PVC AD revenue to continue to benefit from higher advertiser demand at Hulu as well as from the ramp up of the Disney plus and Pierre.
As we work toward achieving <unk> profitability by the end of fiscal 2024, we don't necessarily expect the progress to be linear each quarter as the impacts of the transformative work we are doing take time to realize.
We expect to see more meaningful improvement in our D to C losses.
By the middle of fiscal 2024.
These expectations and plans remained subject to all of the risks and assumptions. We previously identified and are noting here today.
Which will require close and ongoing assessment.
But we remain encouraged by the early results, we've already realized and are optimistic about our path ahead.
Moving onto our content sales line of business.
Operating results declined by a little over $200 million versus the prior year.
Lower results in the third quarter versus the prior year due to lower TV <unk> MP apical results.
For Q4, we expect this business to generate operating losses up to $100 million.
Worse than last year's fourth quarter.
And that linear networks operating income decline versus the prior year by $580 million driven by declines at both domestic and international channels.
The decrease at domestic channels was driven by lower advertising and affiliate revenue.
And by higher programming and production costs, driven by the MBA and the new Formula One agreement.
While domestic linear advertising revenue declined year over year, ESPN AD revenue increased by 4% demonstrating.
Demonstrating the relative strength of sports.
Quarter to date ESPN domestic linear cash AD sales are pacing down.
Reflecting in part the absence of the Big 10 this year.
It's worth, noting however that the absence of the Big 10 is expected to drive overall operating income favorability in Q4 versus the prior year.
The fourth quarter will also hold one additional Monday night football game versus the prior year.
Linear advertising continues to see impacts from market softness while sports is healthy entertainment continues to face headwinds.
Note that we expect DTC advertising year over year growth to partially offset linear declines in the fourth quarter.
And we wrap this year's upfront with overall volume roughly in line with the prior year.
Growth in addressable revenue increased representing over 40% of the total upfront volume and supports pricing is up single digits across the board.
Domestic linear networks affiliate revenue decreased by 2% from the prior year.
Do a six point decline from fewer subscribers, partially offset by four points of growth from contractual rate increases.
International channels operating income decreased versus the prior year, driven by lower advertising revenue and to a lesser extent and unfavorable foreign exchange impact.
Our parks experiences and products portfolio of businesses continues to be an earnings and free cash flow growth driver for the company.
With both revenue and operating income increasing by more than 10% versus the prior year.
International Parks continued its strong growth with year over year operating income increasing at all our international sites.
But most significantly at Shanghai, Disney, which saw record highs for a revenue Oi and margin perspective.
At domestic parks and experiences operating income was up 24% versus pre pandemic results in fiscal 19.
But declined 13% versus the prior year.
In addition to the inflationary cost pressures, we have discussed on prior calls and some of the near term headwinds or Disney World that Bob mentioned earlier.
Results reflect an approximately $100 million accelerated depreciation charge related to the closure of the Galactic star cruiser.
These drivers were partially offset by favorable performance at our cruise line and at Disneyland resort.
While Walt Disney World results were down year over year as Bob mentioned operating income was nearly 30% higher versus 2019, when adjusting for the star cruiser accelerated depreciation.
Domestic parks attendance grew slightly year over year.
Reflecting comparisons against last year's strong trends coming out of the 50 <unk> anniversary at Walt Disney World.
Per cap spending was comparable to the prior year with contributions from pricing Genie, plus and higher food and beverage spend.
Offset by attendance compensation changes and lower merchandise spend.
Excluding the impact of the star cruiser accelerated depreciation domestic parks and experiences operating margins in Q3 were roughly three percentage points below the prior year.
And Deepak margins were slightly higher than the prior year.
We continue to expect some moderation in demand at our domestic parks.
As we compare against our highly successful 15th anniversary celebration at Walt Disney World and the burn off pent up demand persists.
While elevated travel costs are impacting international visitation.
We are also seeing continued cost pressures in the fourth quarter predominantly from labor wage rate growth.
Coupled with a $150 million of remaining accelerated depreciation for the Galactic star cruiser.
However, we still expect all in Q4 operating margins at Deepak to exceed the prior year due to the ongoing strength of recovery at our international parks and cruise lines.
Putting this all together, excluding the impact of accelerated depreciation for the star cruiser.
We are still expecting full year total company revenue and segment operating income to grow at a high single digit percentage rate versus the prior year.
Currently expect fiscal 2023 content spend to come in at approximately 27 billion.
Which is lower than we previously guided due to lower spend on produce content.
In part due to our writers and actors strikes.
We now expect capital expenditures for the year totaled $5 billion.
This is lower than our prior guidance, primarily due to spending timing shifts for various projects across the enterprise.
In the midst of the transformative work we've been doing we are prioritizing long term free cash flow growth and have generated $1 $6 billion of free cash flow in the third quarter.
Our balance sheet remains strong with our single a credit ratings, reflecting that strength.
We have made significant progress deleveraging coming out of the pandemic.
And we continue to approach capital allocation and a disciplined and balanced manner.
<unk> investments to generate future growth.
While also keeping an eye towards shareholder returns.
And to that point as we've mentioned before we still expect to be in a position to recommend that the board declared a modest dividend by the end of this calendar year with the intention to recommend increased shareholder returns over time, as our earnings and free cash flow power growth and with.
That I will turn it back over to Alexia for Q&A.
Thanks, Kevin as we transition to the Q&A, we ask that you. Please try to limit yourself to one question in order to help us catch as many as possible today and with that operator, we're ready for the first question.
And ladies and gentlemen, we will now begin the question and answer session.
To ask a question you May press Star and then one.
Draw your questions you May press star and two.
Our first question comes from Phil Cusick from Jpmorgan. Please go ahead with your question.
Hi, Thank you.
Bob the linear business is clearly under pressure and you made it clear recently that all options are being considered I am curious, though what the practical considerations are separating assets like ABC national geographic or others from both ESPN or sports or integrated or from Hulu, which is kind of the next generation distribution platform.
Can you talk about that and then second can we assume that most of those TV assets had been fully depreciated. Thank you.
Okay.
Clearly.
If we are to do anything significant in terms of strategic direction for the linear nets.
We have to keep in mind the.
Need for content ultimately fuel our DTC businesses, notably.
As you mentioned Hulu.
So anything that has to be done would be done with.
I'd toward maintaining a rich flow of content to fuel our growth business and that will be streaming.
Theres, obviously complexity as it relates to.
Decoupling, the linear nets from ESPN, but nothing that we feel we can't contend with.
If we were to ultimately create strategic realignment.
And Phil This is Kevin with respect to the assets. These are been around for quite a while at this point and we're not going to comment specifically on where they sit from a depreciation standpoint.
Thank you next question please.
Our next question comes from Jessica Reif Ehrlich from B.
Please go ahead with your question. Thank you Bob maybe just a follow up on your prepared remarks and dumping core strategic.
Can you share with us how you plan to improve the performance of maybe what the timeframe or create more original content just give us more color and then a follow up to something you said on DTC and password crackdown is this a fiscal 'twenty four full year like will you be done by the end of the year and is it on a global basis, how many password shares do you think there are.
Our banking platform.
The second part of your question Jessica regarding password sharing.
We already have the technical capability to monitor much of this.
Im not going to give you a specific a specific number except to say that it is significant but we don't know of course as we get to work on this how much of the password sharing as we basically eliminated we will convert to growth in subs. Obviously, we believe there will be some but we're not speculating what we are saying, though is that in calendar 'twenty.
Four we're going to get at this issue and so while it is likely you'll see some impact in calendar calendar 'twenty four it is possible that we won't be complete.
The work will not be completed within the calendar year, but we certainly have established this is a real priority and we actually think that there is an opportunity here to help us grow our business regarding our studio performance.
<unk> put things in perspective, a little bit the studio has had a tremendous run over the last decade, perhaps the greatest run that any studio has ever had with multiple billion dollar hits them.
<unk> by the way too that we're relatively recent.
One in particular avatar.
The way of water and we also had a pretty strong performance with Guardians of the Galaxy three which is done I think approximately $850 million in global box office that said the performance of some of our recent films has definitely been disappointing and we don't take that lightly and as you'd expect we're very focused on improving that.
Quality and the performance of the films that we've got coming up it's something that I'm working closely with the studio on I am personally committed to spending more time and attention on that as well.
Alright, operator next question please.
Our next question comes from Ben Swinburne Byrne from Morgan Stanley . Please go ahead with your question.
Thank you good afternoon.
Bob.
The pressures that with the price increase information for later this year Tonight I am just wondering now that you've been through one Disney plus price increase here in the U S and multiple Hulu and ESPN increases sort of how youre thinking about the pricing power of it.
The product as you go into these even more significant increases and whether you think you can hold your customer base as you raise prices.
And obviously, some big news with ESPN debt.
Why now and why Pat can you just talk about your vision or Jimmy its vision for the ESPN product over time that stems from this this announcement and other thoughts on Espn's future.
Ben as you know I think as we've said before we took a pretty significant price increase at Disney plus some.
Sometime late in calendar 'twenty two.
And we really didn't see significant churn or loss of subs because of that which was actually heartening.
It's important to note, though that the price increase that we've just announced a price increase for the premium product or the non advertiser supported product, we're actually keeping the advertiser supported products flat in terms of prices that's being done for a reason obviously has been noted by by Kevin in his in his remarks the adverse.
Rising marketplace for streaming is picking up it's more healthy than the advertising marketplace for linear TV, we believe in the future of advertising on our streaming platforms, both Disney plus and Hulu and we're obviously trying with our pricing strategy to migrate more subs to the advertiser supported tier.
It also should be noted as I think I mentioned in my remarks that a substantial amount of new subscribers to Disney plus are signing up for the AD supported tier which suggests that the pricing is working for us in that regard. So we're looking at this very carefully one thing I think that I should also note is that we.
Grew this business really fast really before we even understood what.
Our pricing strategy should be or could be and we're really just getting at and I'd say in the last six months of pricing strategy, that's really aimed at enabling us to improve the bottom line ultimately to turn this into a growth business and as a component of that obviously to grow subs.
Yes.
Pn bet.
You say why now when we've been in discussions with a number of entities over a fairly long period of time.
It's something that we've wanted to accomplish obviously, because we believe there's an opportunity here to significantly grow engagement via SPN with ESPN consumers, particularly younger consumers and Pan <unk> Pan because Penn stepped up in a very aggressive way and made an offer to us that was better than any of the competitive offers.
By far and we like the fact that Penn is going to use this as a growth engine for their business.
And.
Actually believe and trust and their ability to put in this partnership to grow their business nicely, while we grow hours.
Thank you.
Operator next question please.
Our next question comes from Michael Nathanson from Moffatt Nathanson. Please go ahead with your question.
Hey, Bob I have two one is given the thinking you've done about the future of Disney why doesn't it make sense to.
Disney companies, one focused on park CP Disney plus and then the studio IP that drives that flywheel and then one on everything else. So why not make a clean break and then secondly on ESPN you have been talking about partnerships I Wonder if you have a vision.
Streaming content vision of ESPN, that's different than the linear when we see perhaps a sports bundle with either other networks or with Lee partnerships. So can you just expand on how the product will look differently down the road.
Dreaming than it does now momentarily.
Michael on the first part I am not going to comment on the future structure of the company or the asset.
Makeup of the company as I've said, we're looking at strategic options, both for ESPN and for the linear networks, obviously addressing all of the challenges that those businesses are facing I'm looking forward to reading your thesis on maybe maybe you'll give us some ideas about it but I'm not going to make any comments about it right now.
Regarding.
The second question.
<unk>.
The strategic partnerships that were.
Looking to create and then we're actually in discussions about are aimed at accomplishing a few things one.
Content, meaning increasing the content that ESPN offers and to possibly I'll call it distribution and marketing support its possible that we will be able to do both.
This is all being done with an eye towards the inevitability of taking ESPN flagship over the top so when we look ahead and we see.
Business that will be a direct primarily a direct to consumer business. We obviously have an eye toward how much content do we need in order to make that a successful business that obviously ties to what the pricing model needed to be and actually how much distribution support we need we benefited.
Greatly from the distribution support in the old business model from cable and satellite obviously when you go DTC you are kind of doing it on our own on your own or maybe not or maybe there is an opportunity with another entity to help in that regard. So we're basically looking quite expansively I must say, we're extremely encouraged with.
The interest that we've had already in this regard and I think it's safe to assume as we ultimately turn this into a streaming business. While we have a phenomenal hand, right now better than anyone else in terms of the content. The ESPN offers that we believe that adding more content and under economical.
<unk> might be a wise thing.
Okay. Thanks, Bob.
Later next question please.
Our next question comes from Steven Cahill from Wells Fargo. Please go ahead with your question.
Thank you Bob You said you are now on track to exceed that initial goal of $5 5 billion in cost savings in DTC came in ahead in the quarter as you think about the future of this business long term and getting to kind of the price and cost structure that you're aiming for or do you have any expectations for longer term DTC margins just seems like you are meaningful.
Below where Netflix was at a similar revenue scale. So I'm wondering how you think about that 15% or 20% margin level as that business gets above $20 billion in revenue. This year and then just secondly, as a follow up given that you have the who can put coming up next year. What are your thoughts on your ability to fund that transaction as we head into that time horizon.
Thank you.
Our streaming business is still actually very young it's in fact, it's not even four years old.
It launched in November of 2019.
And we love look we'd love to have the margins that Netflix has they've accomplished those margins, though over a substantially longer period of time and they have done so because they figured out how to really carefully balance their investment in programming.
There is from a pricing strategy and what they spend in marketing.
Because we're new at all of this we actually have not really achieve the kind of balance we know we need to achieve in terms of cost savings and pricing and money spent on marketing and of course, all the other things that we're looking at from a technological perspective that grows engagement with our customers like as a for instance.
<unk> engines would be one example of that that have the ability to improve performance or obviously grow consumption. So I would say that.
And.
Obviously I can't emphasize enough the time that we spent and the effort that we spent on managing costs. We've done a tremendous job in a very very short period of time of exceeding the cost.
Reductions that we said we were going to.
<unk> and that's obviously a major step in the direction of improving our margins pricing as we've talked about earlier on this call and in our comments is another way to do that.
Password sharing is another way to do that getting the technology in place to grow engagement decide the advertising side of this business is another so.
Im reasonably optimistic and hopeful that we will be improving our margins in this business significantly over the next few years, but I am not going to make any any further predictions in that accept the good news is that.
We know how much work we have to do we know the work that we have to do as well.
And Stephen I'll answer the question with respect to the sort of cut so.
I'll remind everyone that before for that put us about $9 $2 billion.
We're very comfortable with our current liquidity position, we've got about $11 $5 billion of cash on our balance sheet.
Got it at $10 $5 billion worth of revolving credit facilities and commercial paper.
And so we've got and we're going to have plenty of cash future cash flow to help fund all of this as all of us going forward.
I would also like to note that from a balance sheet perspective, we've got a strong single a credit rating that reflects the strength that we see on our balance sheet, we made significant progress recently.
Leveraging coming out of the pandemic.
We're prioritizing key free cash flow as a company and we're being really disciplined and smart about how we go about allocating capital across the company.
And last but not least as I noted in my prepared remarks, we hope to still be in a position, where we plan to still be in a position at.
At the end of this year to recommend to the board of directors that we put up a modest dividend balance.
Next question please.
Our next question comes from <unk> Bank attached bar from Barclays. Please go ahead with your question.
Thank you.
And then the ESPN side, you've spoken about the.
The need for partners.
Could you talk a little bit about the priorities. When you look at partners is it more in the four months.
Did that capital infusion or maybe some kind of reach on the distribution side. When it comes to treatment what are the objectives that insulting floor.
And then Kevin maybe as a follow up to the guidance just triangulating between some of the segment guidance that you. Just can you then trends in the first three quarters.
Full year high single digit.
Thats because of the GP.
We'll need more acceleration in Q4 than we've seen in the first three quarters of Hawaii. So if you could just talk to what are the drivers that explanation. Thank.
Thank you.
Kevin we're not necessarily looking for cash infusion when it comes to partners. We're looking for partners that are going to help ESPN successfully transitioned towards DTC model and that as I have said.
Can come in the form of either content or distribution and marketing support or both.
And can I ask can you repeat your second question. Please.
So in terms of the guidance for high single digit like boots.
Just triangulating between the trends in the first three quarters and some of the segment guidance in the quarter at.
It seems to imply.
In the fourth quarter would be higher for Huawei, and so just wanted to understand what the drivers there.
Thats elevation.
Absolutely.
Yes, there is.
Very significant growth across our <unk>.
Direct to consumer business and at our parks and experiences business also so those two businesses predominantly are the big growth drivers as you begin to look at relative to the prior year, where we're getting that kind of growth.
Operator next question please.
Our next question comes from Brett Feldman from Goldman Sachs. Please go ahead with your question.
Thanks, So I'm curious how your experience with Disney plus hotspot shape. Your view on your long term international streaming strategy are you thinking about maybe.
Those markets are there any markets and maybe focusing more on content licensing partnerships is it essential that you reshape that international strategy in any way to meet your long term profitability objectives.
We actually have been looking at.
Multiple markets around the world with an eye towards prioritizing those that are going to help us turn this business into a profitable business.
What that basically means is there are some markets that we will invest less in local programming, but still maintain the service. There are some markets that we may not have a service at all and there are others that we'll consider I'll call it high potential markets.
We will invest nicely for local programming marketing and it basically full service content in those markets. So basically what I'm, saying is not all markets are created equal.
In terms of our March to profitability one of the ways. We believe we are going to do that is by creating priorities internationally.
Alright, operator, we have time for one more question.
Our next question comes from Michael Morris from Guggenheim. Please go ahead with your question.
Thank you very much good afternoon, guys. So on the theme of considering options for Disney There was an article published recently that speculated that the entire company could be sold to a larger technology company.
Bob My straightforward question is do you see a plausible scenario, where the entire company would be sold.
Maybe a bit more broadly, though when you think of <unk>.
Maximum value of the Disney Enterprise.
Do you think that can be achieved by being more aligned with a single technology partner or is that value maximized through partnering with a variety of tech platforms and if I could just sneak one in on the Penn gaming announcement.
Or will you forego advertising partnerships with all other.
Betting or sports gaming partners and if so how much impact will that have an exchange for building value in this partnership. Thank you.
Michael I, just I'm not going to speculate about the potential for Disney to be acquired by any company, whether the technology company or not obviously anyone wanted to speculate about such things would happen immediately consider the global regulatory environment, I'll say no more than that.
Not something that we obsess about.
Okay, and then Michael with respect to.
Any foregone economics or no longer accepting advertising from other gaming companies and I don't see us in a position where we've ever been in that situation.
Okay. Thanks for the question and I want to thank everyone for joining US today note that a reconciliation of our non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website. Let me also remind you that certain statements on this call including financial.
Estimates or statements about our plans guidance or expectations or other statements that are not historical in nature may constitute forward looking statements under the securities law.
We make these statements on the basis of our views and assumptions regarding future events and business performance at the time that 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.
These factors include economic or industry conditions competition, and execution risks, including in connection with our business plan organizational structure and operating changes cost savings earnings expectations and drivers of growth and our DTC content and how it made available on our platform subscriber advertising and revenue.
And profitability.
In particular, our expectations regarding DTC profitability, our belt on certain assumptions around subscriber addition, based on the availability and attractiveness of our future content, which is subject to additional risks related to ongoing work stoppages churn 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 were based on extensive internal analysis as well as our recent experience provide a layer of uncertainty in our outlook.
For more information about risk factors. Please refer to our Investor Relations website. The press release issued today the risks and uncertainties described in our Form 10-K Form 10-Q, and other filings with the Securities and Exchange Commission, we want to thank you all for joining us and wish everyone. A good rest of the day.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation. Thank you for joining you may now disconnect your lines.