Q4 2023 The Walt Disney Co Earnings Call
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Good afternoon, and welcome to the Walt Disney Company fiscal full year, and Q4 2023 financial results Conference call.
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I would now like to turn the conference Alexia, what Ronnie Executive Vice President Investor Relations. Please go ahead.
Good afternoon, it's my pleasure to welcome everybody to the Walt Disney Company's fourth 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 as well as the fourth quarter earnings presentation will all be made available on our website after the call.
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 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, everyone.
Before we begin this week, we announced that Hugh Johnston will be joining the Walt Disney Company as senior Executive Vice President and Chief Financial Officer, After 34 years with Pepsico.
It's great to have huge joining Disney at this important moment for our company.
I'd also like to thank Kevin Lansberry, who stepped into the CFO role on an interim basis earlier. This year and has provided strong leadership in the months since Kevin is returning to his role as CFO of our Disney experiences segment.
Hear more from him in just a bit.
Now, let's turn to the quarter.
Our results this quarter speak volumes about the underlying strength of our company and a remarkable amount of work we have accomplished this past year.
Q4, adjusted earnings per share nearly tripled over the prior year.
And all three of our businesses entertainment experiences and sports.
Significant increases in fourth quarter operating income compared to Q4 of fiscal 'twenty two.
The thorough restructuring of our company has enabled tremendous efficiencies are on track to achieve roughly seven.
$5 billion in cost reductions, which is approximately $2 billion more than we targeted earlier this year.
Our new structure also enables us to greatly enhance our effectiveness, particularly in streaming where we've created a more unified cohesive and highly coordinated approach to marketing pricing and programming.
This has helped us improve operating results of our combined streaming businesses by approximately $1 $4 billion from fiscal 2022 for fiscal 2023.
And we remain confident that we will achieve profitability in Q4 of fiscal 2024.
And most importantly, our new structure has restored creativity to the center of our company and we certainly know from our now 100 year history that nothing is more important or critical to our success.
Indeed, our strong creative accomplishments helped drive impressive growth in core Disney plus subs with nearly $7 million added in the quarter.
This reflects the success of numerous popular titles to hit the platform, including Guardians of the Galaxy volume III.
The little Mermaid and elemental continuing the trend of our theatrical releases being some of the most watch content on Disney plus.
The original has also performed incredibly well across all our platforms, including Asoka on Disney plus the Kardashians, which is now our most viewed unscripted Hulu original series ever and the spectacular Korean original series, moving which has become a breakout hit.
As I reflect on our achievements. This past year are mindful of the fact that a lot of time and effort was spent on fixing.
Both contending with certain decisions made in the recent past.
And addressing the numerous challenges brought on by disruption and depend epic.
And while we still have work to do to continue improving results.
Our progress has allowed us to move beyond this period of fixing and begin building our businesses again.
As we look forward, we are focusing on four key building opportunities that will be central to our success.
And they are.
<unk> significant and sustained profitability in our streaming business builds.
Building ESPN into the preeminent digital sports platform, improving the output and economics of our film studios and turbocharging growth in our experiences business.
We've already made considerable progress on these core opportunities and we will continue to move forward with a sense of purpose and urgency.
I've articulated many of my thoughts about our strategic initiatives.
Today I want to discuss in more detail. These four building opportunities as we enter this next phase first is turning streaming into a profitable growth business and I am pleased to say our recent performance solidifies that we're on that path.
In the four years since we launched Disney plus which generated roughly 10 million sign ups in the first 24 hours alone core Disney plus subscribers have now reached over $112 million as of the end of fiscal 'twenty three.
Including the nearly $7 million, we gained this quarter.
What's more our AD supported Disney plus product grew by approximately 2 million subscriptions in Q4 to a total of $5 2 million.
In fact more than 50% of Q4, New U S subscribers chosen AD supported Disney plus product and.
And over the past six months these <unk> subs.
34% more time watching the surface.
We have the best Advertiser technology in the streaming business globally, and we have just introduced new tools that will make this an even more attractive platform for advertisers much as we've done with cooler.
And speaking of Hulu, we were pleased to announce last week that we will acquire the remaining stake in Hulu held by Comcast, which will further Disney streaming objectives, we remain.
<unk> on track to rollout a more unified one app experience domestically, making extensive general entertainment content available to bundle subscribers via Disney plus that.
That includes critical and audience favorites like coolers only mergers in the building.
The bear.
Abbott elementary as well as titles from our extensive content library built over decades, including adult animation standup like family Guy and long running hit series like 911, which is moving to ABC for season seven.
We expected Hulu on Disney plus will result in increased engagement.
Greater advertising opportunities lower churn and reduce customer acquisition costs.
Thereby increasing our overall margins.
We will launch a beta version for bundled subscribers in December giving parents time to setup profiles and parental controls that work best for their families ahead of the official launch in early spring 2024.
Also we have additional opportunities for improvement and our streaming business that will come from implementing stronger standards around account sharing although given the timing of our planned rollout, we don't expect a meaningful impact until 2025.
Now that we have realigned our pricing and marketing strategies focused aggressively on getting the technology right merged our creative and distribution teams and restored creative excellence is our singular motivating priority with the content. We create we are bullish about the future of our streaming business.
And as you consider the components in the future of that business just imagine the opportunities that are further combined Disney plus Hulu and ESPN streaming experience could offer us as a company and our consumers.
Another core building opportunity is taking ESPN, which is already the world's leading sports brand and turning it into the preeminent digital sports platform, allowing us to reach fans and compelling new ways and fully integrating key features into our primary ESPN offering.
We're already moving quickly down this path.
And we are exploring strategic partnerships to help advance our efforts through marketing technology distribution and additional content.
As we continue to develop our streaming business. The continued strength of ESPN relative to the backdrop of notable linear industry declines demonstrates the value of sports and the power of the ESPN brand.
Overall, our domestic ESPN business grew in revenue and operating income in both fiscal 'twenty, two and in fiscal 'twenty three.
This fiscal year also saw the network delivered its best overall viewership in four years and its highest viewership in the key 18 to 49 demographic in the same time period.
ESPN viewership was up in each of the four quarters as well maintaining steady success throughout the entire year.
Across ESPN networks, the company increased its already industry, leading share of sports viewership in fiscal 'twenty, three and we continue to see stability and AD sales despite challenges facing the broader media industry.
ESPN bet will launch next week through our agreement with Penn Entertainment and we're excited to bring sports fans this compelling new experience.
Regarding our broader linear business, we continue to evaluate options for each of our linear networks with the goal of identifying the best strategic path for the company and maximizing shareholder value.
However, a review of the business. Thus far has uncovered significant long term cost opportunities, which we're implementing while continuing to deliver high quality content.
Speaking of which I'd like to acknowledge the world class journalists and producers at ABC news over the past few months many of risk their lives to keep our audiences informed during relentless new cycles, and maybe ABC number one in network news for the 11th consecutive year.
Next is the need to strengthen the creative output of our film studio, which generates value throughout the entire company.
To achieve this we are focusing heavily on the core brands and franchises that fuel all of our businesses.
And reducing output overall to enable us to concentrate on fewer projects and improve quality, while continuing our effort around the creation of fresh and compelling original IP.
I'm devoting considerably more of my time to this with the goal of improving returns always seeking to exceed the level of creative excellence audiences expect from Disney.
Meanwhile, we have four of the top 10 highest grossing films at the global box office this year, including <unk> elemental, which is gross nearly a half of $1 billion worldwide. In addition to being the most viewed film released this year on Disney plus.
We have more new releases still to come in calendar year, 'twenty three including the Marvels from Marvel Studios, which will be released this Friday and wish our newest film from Walt Disney Animation Studios, which marks our company's 100th anniversary and will be in theaters beginning November 20 <unk>.
We're also looking forward to a strong theatrical slate in 2004 with several films tied to popular franchises like Deadpool III, featuring Wolverine Kingdom of the planet apes and inside out to additionally.
Additionally, mufasa, the lion King and sequels from our toy story frozen Zootopia, an avatar franchises are all in the works.
Finally, we have an opportunity to build Disney experiences into an even bigger and more successful cash flow generation business.
<unk> experiences overall remains a growth story and we are managing our portfolio exceptionally well.
Even in the case of Walt Disney World, where we have a tough comparison to the prior year. When you look at this year's numbers compared to pre pandemic levels in fiscal 19, we've seen growth in revenue and operating income of over 25% and 30% respectively.
Over the last five years return on invested capital is nearly doubled in our domestic parks and we have seen sizable increases over that same timeframe across the total experiences portfolio as well.
Not to mention the improved guest experience ratings were now seeing at every one of our parks.
As we announced in September we plan to turbocharge growth in our experiences business through strategic investments over the next decade.
Given our wealth of IP innovative technology buildable land unmatched creativity and strong returns on invested capital we're confident about the potential from our new investments.
Looking at the company as a whole today, we are focused on driving profitable growth and value creation as we move from a period of fixing to a new era of building.
We have a strong balance sheet, and we expect free cash flow to significantly improve in fiscal 'twenty for approaching pre COVID-19 levels.
Disney's experiences business with its expansive offerings around the world is a key differentiator and it remains a powerful growth engine expanding operating margins by nearly 300 basis points over the past five years.
As we transition ESPN to a streaming future and more fully integrate general entertainment content into Disney plus we will have a DTC offering unlike any other in the industry.
And Disney's leadership and workforce around the world are second to none.
When you combine all of that with our unrivaled portfolio of valuable businesses brands and assets and the way we manage them together Disney has a strong hand that differentiates us from others in the industry.
Our results this quarter are a testament to the work we've done across the company. This past year and I am bullish about the opportunities we have to create lasting growth and shareholder value and to strengthen Disney's position as the world's leading entertainment company and with that I will turn things over to Kevin.
Thank you Bob I appreciate your kind words at the outset of the call. It's been an honor serving as interim CFO. These past few months.
We are excited to welcome you to the Walt Disney Company and I look forward to working with both of you on all of this ahead.
Now to dive into this quarter's results.
Diluted earnings per share, excluding certain items increased versus the prior year to 82.
In the fiscal fourth quarter.
And $3 76 for the full fiscal year.
This past year has been marked by both transformation and execution.
And we are pleased with the momentum we are building and the results we've realized.
Including meeting our guide of high single digit percentage growth in both revenue and operating income for fiscal 2023.
Total company revenues for the year increased 7% and segment operating income grew by 8%.
Excluding the impact of accelerated depreciation from the Galactic Star cruiser.
And free cash flow for the year increased substantially totaling close to $5 billion.
Driven by the work we've been doing on the cost efficiency front.
And by improvement in our underlying financial results.
A few weeks ago, we published our recast financials aligned to our newly reorganized segment structure.
Today I'll be walking through the fourth quarter's financial results for each of our three segments Entertainment sports and experiences and I'll also provide some color for the year ahead.
Starting off with entertainment.
Q4, operating income grew by over $800 million versus the prior year quarter.
Driven by improvement in our direct to consumer business.
We continue to make headway on our path to profitability and streaming with fourth quarter operating losses at our entertainment DTC services, improving by nearly $1 billion versus the prior year.
$85 million sequentially to $420 million.
Note that our entertainment direct to consumer results exclude ESPN plus.
Including ESPN, plus our combined streaming businesses and an operating loss in the fourth quarter of $387 million.
A year over year improvement of a little over $1 billion and a sequential improvement of $125 million.
As Bob noted earlier, we added nearly 7 million Disney plus core subs over the past quarter.
Reflecting strong content performance and our global summer promotion.
Disney plus core <unk> increased sequentially by 12.
Driven by pricing increases and higher advertising revenue, partially offset by the impact of the summer promotion.
The Disney plus add terror added approximately 2 million subs during the fourth quarter and ended the fiscal year with $5 2 million subscribers.
We anticipate core Disney plus subscribers in fiscal Q1.
<unk> declined slightly versus Q4 due to be expected temporary uptick in churn from the recent U S price increases as well as from the end of the summer promotion.
However, we expect to see sub growth rebound later in the fiscal year.
Growth in entertainment PVC advertising revenue of 4% in Q4 versus the prior year, partially offset linear ad declines.
The growth reflects an increase at Disney plus while Hulu results declined due to lower political and technology category advertising.
We continue to expect to reach profitability at our combined streaming businesses in Q4 of fiscal 2024.
Although as we have mentioned in the past, we don't expect linear progress from quarter to quarter.
While we expect entertainment data fee operating losses in Q1 to be generally in line with Q4 due to higher sports rights costs at ESPN plus aligned with the start of the NHL season.
We anticipate a modest sequential decline in Q1 for the combined streaming business.
Whereas we have also said previously we anticipate upward momentum later in the fiscal year to be driven by realizing the full impact of price increases the launch of the AD tier internationally and subscriber growth.
At linear networks, which now excludes our sports channels fourth quarter operating income was flat to the prior year.
Reflecting lower advertising and affiliate revenues, which were generally offset by a decrease in marketing and programming and production costs.
Advertising revenue declines were driven by our domestic business, primarily at ABC and our own television stations.
Domestic entertainment affiliate revenue decreased by 4% in the fourth quarter versus the prior year due to a six point decline from fewer subscribers.
And a one five point adverse impact from the charter blackout, partially offset by a roughly four point impact from higher rates.
Bob mentioned, we remain focused on driving additional cost efficiencies in this business over the long term.
Content sales licensing and other lower operating results versus the prior year due to lower theatrical results.
Partially offset by higher home entertainment results.
We currently expect that first quarter operating income will be roughly breakeven and comparable to prior year.
Moving to our sports segment Q4, operating income increased by 14% versus the prior year.
Results were driven by our domestic ESPN business from lower programming and production costs.
Growth in subscription revenue at ESPN, plus due to both pricing and sub growth and lower marketing costs, partially offset by lower affiliate revenue.
The decrease in programming and production costs reflect the absence of the big Tam.
And domestic ESPN linear advertising revenue increased by 1% in the fourth quarter versus the prior year. Despite the absence of the big 10.
The charter blackout in a highly competitive marketplace.
Domestic affiliate revenue decreased by a little less than 5% in Q4 versus the prior year.
Five five points of growth from higher rates were offset by adverse impacts of approximately seven five points from fewer subscribers and two points from the charter blackout.
As Bob referenced earlier, it's worth noting that Espn's domestic business group, both full year revenue and operating income in each of the last two years.
These results give us confidence in our belief that sports has the power to drive value for the company even in the face of challenging industry headwinds.
Finally at experiences fourth quarter operating results increased by over 30% versus the prior year quarter and 27% versus fiscal 19.
Operating margins at the segment were 22% in Q4, an increase of three percentage points.
Versus the prior year.
Our international operations continued their strong performance trend in the quarter with significant growth across all sites versus the prior year.
Yes, the cruise line Disney Vacation club and Disneyland Resort also all saw strong year over year growth in both revenue and operating income.
At Walt Disney World operating results decreased.
Driven by the accelerated depreciation from the closure of the Galactic star cruiser, along with inflationary impacts and the continued comparison to the 50th anniversary celebration in the prior year.
Looking towards fiscal 2024, we anticipate robust annual operating income growth AD experiences to reflect continued strong performance at our international parks and Disney Cruise line.
While domestic parks and experiences is expecting solid growth for the full year that growth will be heavily back end loaded due to continued challenging comparisons in the first half of the year from the 50th anniversary at Walt Disney World. In addition to wage inflation.
We continue to be bullish on the long term positioning of our experiences business.
As evidenced by our recent announcement on significant investments we plan to make over the next 10 years to turbocharge growth in this area.
We expect those investments to ramp up towards the back half of that 10 year period with more gradual increases in the first few years.
As has been the case historically capex for the parks are largely effectively self funding given the strong returns these investments generate over time and I would also note that a portion of the investments in our theme parks in Shanghai and Hong Kong is funded out of joint venture cash flows.
Before we conclude and move to Q&A. There are a number of additional items I'd like to share for context on the year ahead.
First on capital expenditures fiscal 2023, Capex totaled approximately $5 billion.
Roughly comparable to the prior year and in line with our most recent guidance.
And we expect Capex in fiscal 2020 for a total of $6 billion.
An increase of approximately $1 billion versus fiscal 2023.
Driven by higher spend experiences.
Capex at experiences in fiscal 2024 will look more comparable to fiscal 2019 levels and includes spend at our cruise business ahead of the launch of three new ships in fiscal 2025 and 2026.
Our enterprise wide content spend in fiscal 2023 was $27 billion.
In line with our guidance and about $3 billion below the prior year as we significantly reduced our spend on entertainment content.
As a result of our continued work to be more efficient in our content spend in addition to impacts from the strikes and the timing of sports payments. We expect total content spend in fiscal 2024 to be approximately 25 billion.
Which is a decrease of $2 billion versus 2023.
Note that sports rights now account for over 40% of our enterprise wide content spend.
Our annualized entertainment cash content spend reduction target is now $4 5 billion.
Excluding straight impacts and sports rights.
$3 billion previously.
We expect this to be realized on a cash basis in fiscal 2024, although it will take a few years for the bulk of these savings to be reflected in the P&L due to the timing of amortization.
On the topic of cost savings and streamlining our operations, we have eliminated over 8000 roles and while we are not currently planning to make further large scale reductions to our workforce. We are taking significant concrete steps to continue addressing the cost basis.
Of the overall company.
We have increased our annualized efficiency target for total company SG&A and other operating expenses to 3 billion versus $2 5 billion previously.
Excluding the strike impacts.
Approximately $2 billion of these efficiencies were achieved in fiscal 2023 <unk>.
Naturally we also saw inflation and volume related cost increases throughout the year.
Including higher content amortization and costs related to expanded operations at international parks, and cruise, which were impacted by closures and limited operating capacity in the prior year.
The remainder of the savings are expected to be achieved by the end of fiscal 2024.
Our expense base in fiscal 2024 is expected to only increase slightly versus the prior year.
As these efficiencies and strike savings will mostly offset the year's planned volume related growth and inflation.
Adding the new $4 5 billion cash content spend reduction target to the $3 billion expense target brings our total annualized target to seven 5 billion.
As Bob announced earlier.
All of these factors in addition to continued growth and improvement across our underlying businesses are expected to come together over the coming fiscal year to result in free cash flow generation of roughly $8 billion.
A significant year over year increase and approaching levels, we last achieved.
This continued robust free cash flow growth alongside our strong balance sheet will position us well to address our investment and shareholder return goals for the year and going forward.
To that end, we will be recommending to the board that they declared dividend by the end of this calendar year.
While this will be just the starting point, we do see ample opportunity to continue to increase shareholder returns in the future as our earnings and free cash flow growth.
In the form of increased dividends or share buybacks and we look forward to sharing more as we move ahead.
And with that I will turn the call back to Alexia for Q&A.
Thanks, Kevin as we transition to Q&A. We ask you. Please try to limit yourself to one question in order to help us get to as many analysts as possible today and with that operator, we're ready for the first question.
Our first question will come from Michael Nathanson with Moffett Nathanson.
Thanks, Bob.
Two quick ones for you.
This is your first earnings call post entire Disney agreement. So stepping back what are the most important impacts to Disney after that agreement and then.
Or will you managed company definitely now that that is kind of the template going forward for new deals and then secondly on film studio.
Your first you had the most amazing content cycle until we've ever seen so I'm wondering what do you think it's early in the film slate. This time around and what are your priorities to fixed.
Absolutely your top three priorities.
You're doing in particular to fix it sounds like going forward. Thanks.
Thanks, Michael regarding charter first of all as we said when we did the deal we think it's a great deal for US also think it's a great deal for charter.
It doesn't really change things much in terms of our strategy because when you look at the deal.
It actually ended up reflecting exactly what our strategic priorities are that is streaming.
And in the distribution agreement.
Disney plus as part of the overall charter deal does just that so it leans into our streaming priorities and that strategy doesn't change. Thanks, so much have any opportunity to consolidate a bit on the channel side is I think a good thing at this point.
In terms of the studio nice of you to.
You mentioned, just what a great run first of all let's let's put things in perspective recently, we did have four really strong titles for the top 10.
In the past year led by Avatar of course, but there are other successes to that said as I have looked at our overall output, meaning the studio is clear that the pandemic created a lot of challenges creatively for everybody, including for US and in addition at the time the pandemic hit.
We were leaning into a huge increase in how much we were making.
And I've always felt that quantity can be actually a neg.
When it comes to quality and I think that's exactly what happened we lost some focus and so working with the talented team at the studio, we're looking to and working to consolidate meaning make less focus more on quality, we're all rolling up our sleeves, including myself to do just that.
We have obviously great assets, great stories to tell from the assets that we either have or that we've purchased and I feel really optimistic about the slate going forward, which is going to be a balance between some really strong.
Sequels to some very very popular titles as well as some good original content, starting with wish which comes out of Thanksgiving weekend. So I feel good about the direction, we're headed but I'm mindful of the fact that.
Our performance from a quality perspective was it really up to the standards that we set for ourselves.
Thank you our next question please.
Our next question will come from Steven Cahall with Wells Fargo. You May now go ahead.
Thank you. So first on DTC I mean pricing is about the step up you announced the cost cutting program, some of which might be a DTC or Hulu and Bob I think for a couple of quarters, you've just been talking about how confident you are in streaming profitability. So I'm not asking for guidance, but is there any way for us to just frame what DTC can look like beyond <unk>.
Jake even since that's really the biggest driver of earnings growth and value creation and then on the ESPN side, just as we think about that preeminent sports platform that you are looking to build.
So many folks have already voted with their feet to be outside of the bundle.
How do you think about putting something into the market more quickly maybe at a high price point it doesn't disrupt the bundle just to see if the cord cutters or cord nevers have some demand. Thank you.
I'll take the second part first.
Our plan when we bring ESPN direct to consumer which is inevitable, which is going to happen and we're planning for it.
As to.
What I'll call a soft landing, which has continued to make it available as part of the bundle for those people that want to remain in the bundle or people, who feel that the bundle is still has value to them and at the same time to make it available and then true Ala Carte basis.
And DTC form so it is our hope that it will serve basically the consumer in two ways in the traditional way in a new way and we'll obviously see in terms of where we end up.
A blend of basically consumers to stay in the bundle and does that leave.
Not concerned about it and actually.
As we model basically ESPN into the future we see.
Some cases it will continue to.
Can be sold as part of the bundle and the first to the first question the trajectory of DTC.
We're not going to give specifics, we're not giving any guidance beyond our guidance about becoming profitable at the end of 'twenty four but the building blocks in place to turn this into a real growth business for us and the recent announcements about purchasing.
Remaining stake in Hulu is just one of those building blocks.
On the pricing side, we did take Disney plus prices up for the premium service that non advertiser supported by about 27%. It's still really early to tell but we had taken that those prices up significantly a year earlier and churn was de minimis. So we felt we had the room, particularly as we improve.
With quality.
Any plus service, where overall our strategy regarding pricing is more sophisticated more coordinated across the world than it had been before and as we look at growing that business. A smarter approach to pricing is one bundling is another I am going to come back to the bundled between Disney plus and Hulu and then the <unk>.
Opportunities to bundle ESPN clearly, we've got technology improvements in the works whether it comes to account sharing or whether it comes to basically lowering customer acquisition costs and churn and lowering marketing expenses and growing margins. That's part of it advertising is a strong component of that.
We did not take pricing up for Disney plus advertising supported services and the delta between the advertising supported and the premium services wider because we like the <unk> that we get basically from both sides. So we feel really good about.
The potential of this business and look if you think about the portfolio of streaming assets that we will have Hulu Disney plus and ESPN.
A very very strong hand in December we launched a beta version of Hulu.
And Disney plus combined.
We feel really good about that I saw some.
Basically some demos of that just yesterday as a matter of fact.
Basically putting it in beta so that we can prepare parents largely to basically implement rental controls because youll be able to access Hulu programming on the same app and then in late March we will launch it basically in full form and think we have opportunities in terms of upsell capabilities in terms of the increasing engagement, we found that where we bought.
We lowered churn and again these are steps that are all taken to ultimately turn this into a great business lastly in terms of cost reductions.
We created basically a one world approach to streaming we had multiple organizations before we now have one run globally by data.
Walden and Alan Bergman.
They have created an entirely new senior management team across the globe to manage these assets were doing so much more cohesively, including by the way balancing spending in market local spending and what I'll call Global spending one thing that we have recently been really come to appreciate is the performance of our big titles film.
The so-called pay one window films on the service elemental.
One guardians of the Galaxy <unk> was another.
Little Mermaid and third the numbers, there's huge that's a differentiator for us certainly when it comes to.
Competing with Netflix for instance, which is the gold standard, but by leaning more into some of those films and while we improve the quality of them gives us the ability to dial back a bit on some of the spending and investment in serious and that blend of spending between films and series. We believe gives us an opportunity to increase our <unk>.
<unk> and grow the business.
Next question please.
Our next question will come from Ben Swinburne with Morgan Stanley.
You May now go ahead.
Thanks, Good afternoon, I wanted to come back to the free cash flow commentary, because that's pretty interesting and new and also ask you Bob about your U S sports business in ESPN.
So on cash flow.
$8 billion of free cash flow 6 billion of Capex getting a $14 billion of cash from operations you've been done a number like that I think since 2018 and I'm just trying to understand if you think you can sustain and grow your company at that level of cash content spend I think Kevin said 25, because that certainly allows you to really grow free cash flow.
From a base that is already higher than people were expecting in 2024.
Hopefully that makes sense and then on the sports side, but people think about espns of network facing cord cutting et cetera.
You clearly have a vision there that you think can grow over time can you talk a little bit about how you. How you think about growing the sports business do you think you can between linear and digital and other ancillary services sort of grow your sports business over time, because that would be another area, where you'd certainly outperformed expectations.
Thanks, so much.
I'll take the question about ESPN first interesting I just saw statistics ESPN is the number one brand on Tictoc not the number one sports brand not the number one media brand. The number one brand with about 44 million followers, which is an incredible statistic.
Sps is a very popular high demand in demand product in the United States and unique we believe and we feel leaning into it is the smart thing to do because of its unique quality how popular isn't how profitable it has been.
We believe we have an opportunity there as we bring it in the direct to consumer direction.
To strengthen our hand, when we do that by partnering with either tech companies that can provide us with marketing technology support customer acquisition help.
Or or sports leagues that can provide us with more content.
It's simple we're quite we're actually quite bullish about it and frankly, if we were to just sit back and leave ESPN alone kind of as part of the linear bundle, we know ultimately where that would bring us it certainly wouldn't bring us in a growth direction because because of the base.
Basically the.
The continued decrease in multichannel subscribers. So this is a way to really buck that trend.
To allow it to be part of the multichannel bundle, but also make it available on an Ala carte basis basically of taking a very popular product in fact and make it available and possibly strengthening it by doing what I described earlier.
It's that simple.
And we think about the building blocks of the company.
Right now we believe there are four one of them. Obviously is streaming overall another one we've talked about which is parks and resorts and turbocharging that growth third I talked about earlier, which is returning the studio to basically.
Level of success that became used to before the pandemic and the fourth is turning ESPN into a preeminent digital sports platform.
Kevin you have free cash flow, yes bandwidth respect to cash flow, we do feel good about where we are ending up in <unk> and 'twenty four from our content spend perspective, and when you take a look at how we're getting to that year over year lower content spend is clearly part of it but continued growth and improvement of our underlying business is also.
A huge component of that as is the annualized efficiency targets that we have all implemented so.
Those things are driving a significant amount of year over year improvement in our cash flow.
Alright, operator next question please.
Our next question will come from Jessica Reif Ehrlich with CLSA Securities.
May now go ahead.
Thank you.
And Bob I was just wondering if you could give us your sort of holistic view on advertising on what's going on.
We know money is going into like retail media networks and things like that but you know how.
How much can you as a company makeup on Avon versus.
What's going on with linear and maybe you can give us your view on what is going on the linear video and then on India.
Notably challenging market consistent money loser could you talk about your view of.
Kind of ultimately where that winds up to do on it J D. Do you exit the market.
Jessica first of all in India, our linear business actually does quite well is making money, but we know that other parts of that business are challenged for us and for others and we are looking I'll call. It Expansively I know I've said this before it always gets me in trouble, but.
We're considering our options there we have an opportunity to strengthen our hand. It is I think maybe the most populous country in the world or maybe just still second to China and about the past and we'd like to stay in that market.
But we are also looking to see whether we can strengthen our hand, obviously improve the bottom line in terms of advertising we were actually finding that linear is a little bit stronger than we had expected it would be it's not back as much as we would like is still challenged but it's not as bad as it had been so we've seen some slight improvement.
Actually the tech sector is still somewhat weak.
In general overall advertising has improved we're finding obviously great demand for addressable advertising I noted on the interview I did earlier that we've now put tools in place. So we're using tools and Disney plus.
No.
We provide advertisers with better targeting theyre starting to work.
And in general.
Sports has been very very strong so as we look at the advertising marketplace right now well, it's not as strong as we would like it to be and it's certainly not as bad as some people think it is.
It's working for us on <unk>.
Look it's very very clear that the tools.
The new platforms provide advertisers are exactly what the advertisers are looking for those platforms are an advertiser's dream and we know that.
The more.
The more detail, we can give more context to more targeting we can provide the better off we'll be Hulu had an extremely robust advertising engine. We actually we've got one of the best in the business if not the best and so actually that combination of Hulu and Disney plus with some of the tools that we've put in place.
Give us the ability to have a blended CPM grow engagement grow advertising. So we're quite bullish about our position media wise in the advertising marketplace.
Operator next question please.
Our next question will come from John Hodulik with UBS you May now go ahead.
Great. Thanks, maybe first a follow up to Bob's question.
The opportunity for ESPN to add local sports rights, given what's happening to the RSA model or potentially add sports rights to be distributed outside the U S. That's the first question and then.
My question is Warner Brothers basically made some news recently.
Considering some of their some of their what would be considered some of their tentpole content DC universe to Netflix.
Is that something you think that that that Disney can do I can lean into.
More so than Youre doing now without diluting, the Disney brand or the Disney plus growth prospects.
Good questions John Thank you.
We've actually been licensing content to Netflix.
And we're going to continue to we're actually in discussion with them now about some opportunities, but I wouldn't expect that we will license our core brands to them those are real obviously competitive advantages for us in and.
And Differentiators Disney Pixar Marvel Star Wars for instance, all doing very very well in our platform and I don't see why just basically to chase books, we should do that when they are really really important building blocks to the current and future of our streaming business regarding <unk>.
Local sports.
The technology that we will have for ESPN DTC will give us the ability to provide local sports and a pretty robust way basically what the Rs ends are doing.
But we're not really aiming to do so by taking on significant risk. So if we can find the right kind of business arrangements and partnerships.
I think we will look very seriously at providing local sports as part of their platform.
But again, if it results in us taking on too much risk.
Alright. Thank you operator, we have time for one more question.
Our final question will come from Phil Cusick with Jpmorgan you May now go ahead, hi, guys.
Thank you.
Bob first follow up on ESPN, clearly big priority can you give us some update on types of potential ESPN partners on what the hurdles might be to get those partnerships are announced and then second maybe if you could dig into the recent trends of parks, there's been some noise on pricing, but what have you seen from consumer demand both in Orlando and around the country and how do you think that.
Walt Disney World is doing versus the overall Orlando market. Thanks very much.
The first question first question was on the <unk>.
Conversations.
Alright, sorry, Phil Scott I was listening to your second question I forgot your first one.
Senior moment.
Basically we've been saying and what we've been exploring as it as we prepare to take ESPN in the direct to consumer a direction.
We believe that we have opportunities to strengthen our hand.
Entities that either provide us with technology.
Getting support.
For instance.
Or companies or entities I should say that can provide us with more content. We feel we have an excellent and by the way and could do it without that but why not explore strengthening our hands and so since I noted that we were interested in this back in.
July we've engaged with a number of different entities I can say that there is significant interest out there.
There are obviously complexities to it but not complexities that we're not hurdles that are so high that we can't jump over them.
And we're going to continue to explore it and I would imagine we'll have more to say about this in the coming months.
I don't want to say much more right now except again there is serious interest out there and I think there is a path or paths to deals, but we're working through them and obviously.
As soon as they are completed we will let everybody know if you want to take the consumer demand question, yes. So.
So with respect to the parks and I think we've talked about it in our prepared remarks with respect to walk us thing World and we're lapping the 50 up there. So we're going to continue to have a little bit of that lapping effect that will continue for a little bit.
As we go through Q1, but as I look out at the other domestic businesses, especially.
Land continues to look exceptionally strong as does Disney cruise line. So bookings at all of those continue to be.
Very very strong going forward. So domestically, we feel good and internationally, we feel pretty good. So we're not really seeing anything in terms of an economic hangover.
Thanks, Kevin Thanks, Bob.
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 the 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 planned guidance our expectations and other statements that are not historical in nature may constitute forward looking statements are at the <unk>.
These laws.
We make these statements on the basis of our views and assumptions regarding future events and business performance at the time, we make them and we do not undertake any obligation to update these statements.
Forward looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors.
These factors include among others economic or industry conditions competition and execution risks, including in connection with our business plans organizational structure and operating changes cost savings future financial performance, including expectations and drivers of growth and our DTC content and how it has made available on our platform.
Subscriber advertising and revenue growth and profitability in.
In particular, our expectations regarding DTC profitability are built on certain assumptions around subscriber additions based on the availability and attractiveness of our future content, which is subject to additional risks related to recent work stoppages churn expectations, the financial impact of Disney plus add here on 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 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 our Form 10-K form 10.
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Thank you for joining us and wish everyone. A good rest of the day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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