Q1 2024 The Walt Disney Co Earnings Call
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Operator: Good day, and welcome to the Walt Disney Company's first quarter 2024 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.
Good day and welcome to the Walt Disney Company's first quarter 2024 financial results Conference call.
Yeah.
All participants will be in listen only mode.
Should you 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.
To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Operator: Please note, today's event is being recorded. I would now like to turn the conference over to Alexia Quadrani, Executive Vice President, Investor Relations. Please go ahead. Good afternoon.
Please note today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Johnny Executive Vice President of Investor Relations. Please go ahead.
Speaker Change: Good afternoon, it's my pleasure to welcome everybody to the Walt Disney Company first quarter 2024 earnings call.
Alexia S. Quadrani: It's my pleasure to welcome everybody to the Walt Disney Company's first quarter 2024 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www.disney.com forward slash investors. Today's call is being webcast, and a replay and transcript, as well as the first 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 Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Hugh, we'll be happy to take some of your questions. So with that, let me turn the call over to Bob to get started. Thanks, Alexia, and good afternoon, everyone.
Speaker Change: Our press release was issued about 25 minutes ago and is available on our website at www Dot Disney Dot com or slash sector.
Speaker Change: Today's call is being webcast and a replay and transcript as well as the first quarter earnings presentation, well all be made available on our website after the call.
Speaker Change: Joining me for today's call are Bob Iger, Disney's Chief Executive Officer, and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer.
Following comments from Bob and Hugh will be happy to take some of your questions. So with that let me turn the call over to Bob to get started.
Robert A. Iger: Thanks, Alexia and good afternoon, everyone.
Robert A. Iger: Just one year ago, we outlined an ambitious plan to return to a period of sustained growth and shareholder value creation, and our strong performance this past quarter demonstrates that we have turned the corner and entered a new era. As previously noted, we're focused on transitioning ESPN into the preeminent digital sports platform, building streaming into a profitable growth business, re-invigorating our film studios, and turbocharging growth in our parks and experiences. Before we dive deeper into our results, let me start by making a number of significant announcements that represent important and exciting steps forward. First, we announced yesterday the full suite of ESPN's channels will now be available direct-to-consumer as part of a new joint venture with Fox and Warner Bros. Discovery to create a new streaming sports service launching this fall.
Bob Iger: Just one year ago, we outlined an ambitious plan to return to a period of sustained growth and shareholder value creation.
Robert A. Iger: And our strong performance this past quarter demonstrates we have turned the corner and entered a new era.
Robert A. Iger: As previously noted we are focused on transitioning ESPN into the preeminent digital sports platform.
Robert A. Iger: Building streaming into a profitable growth business reinvigorating, our film studios and turbocharging growth in our parks and experiences.
Speaker Change: Before we dive deeper into our results, let me start by making a number of significant announcements that represent important and exciting steps forward.
Speaker Change: First we announced yesterday the full suite of Espn's channels will now be available direct to consumer as part of a new joint venture with Fox and Warner Brothers discovery to create a new streaming sports service launching this fall.
Robert A. Iger: This brings together content from all of these companies' combined assets, including all the major professional sports leagues and college sports. And in the fall of 2025, we'll be offering ESPN as a standalone streaming option. ESPN is also adding a sports icon to its lineup, with coach Nick Saban joining the network as an on-air commentator later this year.
Speaker Change: This brings together content from all of these companies combined assets, including all the major professional sports leagues and college sports.
Speaker Change: And in the fall of 2025 will be offering ESPN as a standalone streaming option with innovative digital features creating a one stop sports destination. Unlike anything available in the marketplace today.
Speaker Change: ESPN is also adding a sports icon to its lineup with coach Nick Saban joining the network is an on air commentator later this year.
Robert A. Iger: We're excited to share that in November, we will release a feature-length animated sequel to Moana, which joins a very robust lineup of upcoming theatrical releases. We're also thrilled to share that we're entering into an exciting relationship with Epic Games, acquiring a small equity stake, and launching a groundbreaking new games and entertainment universe that brings together Disney's beloved brands and franchises with the hugely popular Fortnite. And I'm pleased to share that Disney's board has declared an additional dividend and will be embarking on a $3 billion stock buyback program in fiscal 24. Oh, and one more thing. Next month, Disney Plus will become the exclusive streaming home of Taylor Swift's historic concert film, The Eras Tour.
Speaker Change: We're excited to share that in November we will release a feature length animated sequel, two moana, which joins a very robust lineup of upcoming theatrical releases.
Speaker Change: We're also thrilled to share that we're entering into an exciting relationship with epic games acquiring a small equity stake and launching a groundbreaking new games and entertainment universe that brings together Disney's beloved brands and franchises with the hugely popular fortnite.
And I am pleased to share that Disney's Board has declared an additional dividend and we will be embarking on a $3 billion stock buyback program in fiscal 'twenty four.
Speaker Change: Oh and one more thing next month's Disney plus will become the exclusive streaming home of Taylor Swift Historic concert film Taylor Swift the ear as tour Taylor's version.
Robert A. Iger: I'll be sharing more with you about these announcements momentarily, but what's clear is that the important transformation we undertook last year is bearing fruit. And looking at our results this quarter, we can say with confidence our strategy is working. Q1 segment operating income increased by 27%, and adjusted earnings per share rose 23% compared to the prior year.
Speaker Change: I'll be sharing more with you about these announcements momentarily, but what's clear is that the important transformation. We undertook last year is bearing fruit.
Speaker Change: And looking at our results this quarter, we can say with confidence our strategy is working.
Speaker Change: In Q1 segment operating income increased by 27% and adjusted earnings per share rose, 23% compared to prior year.
Robert A. Iger: We've improved our entertainment streaming operating income by a remarkable 86% year-over-year and remain poised to reach profitability in our combined streaming business by the end of fiscal 24, and build on our momentum to deliver significant sustained profit margins in the future. Disney's Experiences business generated all-time records in revenue, operating income, and operating margins. And we are on track to meet or exceed $7.5 billion in cost savings as we continue to look for further efficiency opportunities across the company.
Speaker Change: We've improved our entertainment streaming operating income by a remarkable 86% year over year.
Speaker Change: And remain poised to reach profitability in our combined streaming business by the end of fiscal 'twenty four and.
Speaker Change: And build on our momentum to deliver significant sustained profit margins in the future.
Speaker Change: Disney's experiences business generated all time records in revenue operating income and operating margin.
Speaker Change: And we are on track to meet or exceed $7 $5 billion in cost savings as we continue to look for further efficiency opportunities across the company.
Robert A. Iger: Diving deeper into our announcements, let's first talk about ESPN, which continues to deliver meaningfully for the company and will be a key value driver in the future. ESPN's domestic sports business continues to grow, and even amid a challenging linear landscape, ESPN increased its overall audience in calendar year 2023, and it continues to break records in ratings. Ultimately, our mission is to make ESPN the preeminent digital sports brand, reaching as many sports fans as possible and giving them even more ways to access the programming they love in whatever way best suits their needs. One way will be through the new streaming sports service coming this fall that we announced yesterday in conjunction with Fox and Warner Bros. Discovery.
Speaker Change: Diving deeper into our announcements, let's first talk about ESPN, which continues to deliver meaningfully for the company and will be a key value driver in the future.
Espn's domestic sports business continues to grow and even amid a challenging linear landscape ESPN increased its overall audience in calendar year 2023, and it continues to break records in ratings.
Speaker Change: Ultimately our mission is to make ESPN into the pre eminent digital sports brand, reaching as many sports fans as possible and giving them even more ways to access the programming, they love and whatever way best suits their needs.
Speaker Change: One way, we will be through the new streaming sports service coming this fall that we announced yesterday in conjunction with Fox and Warner Brothers Discovery.
Robert A. Iger: This service will bring together our collective portfolios of sports channels and direct-to-consumer services on a non-exclusive basis, providing consumers with more of the sports they want in a single place. It's important for us to serve the needs of consumers looking for a seamless way to access an aggregated collection of sports-centric content, including capturing fans moving away from the full cable and satellite bundle. And it's an attractive business proposition for ESPN, allowing us to command per-unit economics in line with established market rates for our sports content, just like we do with any streaming or linear service where we offer our programs. Another exciting option available to sports fans will come in the fall of 2025 when we make the full suite of ESPN channels available as a stand-alone and highly interactive digital destination. Not only will consumers be able to stream their favorite live games and studio programming, but they'll also have access to engaging digital integrations like ESPN BET and Fantasy Sports, eCommerce features, and a deep array of sports stats, all of which we know will be incredibly compelling to younger sports fans, in particular. It will also have very robust personalization features.
Speaker Change: This service will bring together, our collective portfolios of sports channels and direct to consumer services on a nonexclusive basis, providing consumers with more of the sports they want in a single place.
Speaker Change: It's important for us to serve the needs of consumers looking for a seamless way to access an aggregated collection of sports centric content, including capturing fans moving away from the full cable and satellite bundle.
Speaker Change: And it's an attractive business proposition for ESPN, allowing us to command per unit economics in line with established market rates for our sports content, just like we do with any streaming or linear service, where we offer our programming.
Speaker Change: Another exciting option available to sports fans will come in the fall of 2025, when we make the full suite of Espn's channels available as a standalone and highly interactive digital destination.
Speaker Change: Not only will consumers be able to stream their favorite live games and studio programming that will also have access to engaging digital integrations like ESPN bet in fantasy Sports E. Commerce features and a deep array of sports stats all of which we know will be incredibly compelling to younger sports fans in particular.
Speaker Change: It will also have very robust personalization features.
Robert A. Iger: ESPN has long prioritized its desire and ability to serve sports fans wherever they are, and these steps will strengthen ESPN's ability to deliver on that promise. And, as you know, we've also engaged in productive conversations with potential content and marketing partners for ESPN. We've made progress towards securing deals, and we expect to have more to share with you in the near future. We're excited to offer a more unified streaming experience, which we expect will deliver strong benefits in terms of higher engagement, lower churn, and greater advertising potential. When we launch our stand-alone ESPN service, we'll also make it available on Disney Plus for bundle subscribers, just as we did for Hulu.
Speaker Change: ESPN has long prioritized desire and ability to serve sports fans wherever they are and these steps will strengthen espn's ability to deliver on that promise.
Speaker Change: And as you know we've also engaged in productive conversations with potential content and marketing partners for ESPN, we've made progress towards securing deals and we expect to have more to share with you in the near future.
Speaker Change: We're excited to offer a more unified streaming experience, which we expect will deliver strong benefits in terms of higher engagement lower churn and greater advertising potential.
Speaker Change: When we launched our Standalone ESPN service, we will also make it available on Disney plus for bundled subscribers just as we've done for Hulu.
Robert A. Iger: We've already seen an incredible response to the beta launch of Hulu on Disney+, which has far exceeded every metric, and we are looking forward to the full launch next month. This is all part of the ambitious streaming strategy we've been building. From our acquisition of 21st Century Fox that expanded our vast content library and strong pool of creative talent, to the launch of Disney Plus as the home for a century of content, to securing full control of Hulu and expanding our streaming offerings to reach greater audiences, to our significant investments in technology, and now taking significant steps toward ESPN's streaming future. Disney also has a great advertising story to tell, with unparalleled scale and very strong advertising technology, and our We successfully expanded outside the U.S. with launches in EMEA and Canada and grew to over 1,000 global advertisers in the first quarter, a tenfold increase from last year.
Speaker Change: We've already seen an incredible response to the beta launch of Hulu on Disney plus which has far exceeded every metric and we are looking forward to the full launch next month.
Speaker Change: This is all part of the ambitious streaming strategy. We've been building from our acquisition of 20, <unk> century, Fox that expanded our vast content library and strong pool of creative talent to the launch of Disney plus is the home to a century of content to securing full control of Hulu and expanding our streaming offerings to reach greater audio.
Speaker Change: Answers to our significant investments in technology, and now taking significant steps toward ESPN streaming future.
Speaker Change: Disney also has a great advertising story to tell with unparalleled scale and very strong advertising technology and our AD supported Disney plus offering is off to a great start.
Speaker Change: We successfully expanded outside the U S with launches in EMEA, and Canada and grew to over 1000 global advertisers in the first quarter, that's a tenfold increase from launch.
Robert A. Iger: More than anything, the success of our streaming services is a testament to the amazing content we create, with six of the top 10 most streamed movies across all streaming platforms in the U.S. in 2023. Our best-in-class storytelling continues to entertain millions. We received 27 Golden Globe nominations and won top prizes for FX's The Bear and Searchlight's Poor Thing.
Speaker Change: More than anything the success of our streaming services is a testament to the amazing content, we create with six of the top 10, most stream movies across all streaming platforms in the U S. In 2023 are best in class storytelling continues to entertain millions of people.
Speaker Change: We received 27 Golden Globe nominations and won top prizes for FX as the bear and search slides poor things that this year's Primetime Emmy Awards, we took home 37 wins more than any other entertainment company.
Robert A. Iger: At this year's Primetime Emmy Awards, we took home 37 wins, more than any other entertainment company, and we leave the industry with 20 nominations heading into the Oscars, which will air on March 10th on ABC. We're also proud of our recent Disney-branded programming successes. Percy Jackson and the Olympians, which premiered on both Disney Plus and Hulu in December, has become a bona fide hit, with books from the series returning to the number one slot on the New York Times bestseller list following the debut of the Disney+ series. And I'm thrilled to share that we just picked up a second season. And the hit children's animated series Bluey, which is exclusive to the Disney Channel and Disney Plus in the United States, was recently the number one most streamed show across any streaming platform.
Speaker Change: And we lead the industry with 20 nominations heading into the Oscars, which will air on March 10th on ABC.
Speaker Change: We're also proud of our recent Disney branded programming successes Percy Jackson, the Olympians, which premiered on both Disney plus and Hulu in December has become a bona fide hit books from the series returned to the number one slot on the New York Times bestseller list. Following the debut of the Disney plus series and I'm thrilled to share that we just pick.
Speaker Change: Up a second season.
Speaker Change: And the hit Childrens animated series Bluey, which is exclusive to the Disney channel and Disney plus in the United States was recently the number one most stream show across any streaming platform.
Speaker Change: Looking ahead, we have an exciting slate of originals coming to Disney plus including Agatha from Marvel Studios skeleton crew and the acolyte from Lucasfilm win or lose from Pixar and much more.
Robert A. Iger: Looking ahead, we have an exciting slate of originals coming to Disney+, including Agatha from Marvel Studios, Skeleton Crew and the Acolyte from Lucasfilm, Win or Lose from Pixar, and much more. Additionally, later this month, Hulu will launch FX's highly-anticipated saga Shogun in the U.S. And in March, all seasons of Grey's Anatomy, our number When the show returns next month for its 20th season, Lulu will be the only place to see the current and all previous seasons of this truly iconic series. And speaking of icons, over the past year, we've all witnessed the creative genius and sheer power of a true cultural phenomenon, Taylor Swift.
Speaker Change: Additionally, later this month Hulu will launch FX is highly anticipated saga shogun in the U S and in March all seasons of Grey's Anatomy are number one stream titled globally will join our extensive library of titles on Hulu.
Speaker Change: When the show returns next month for its 20th season, Hulu will be the only place to see the current in all previous seasons of this truly iconic series.
Speaker Change: And speaking of icons over the past year, we've all witnessed the creative genius and sheer power of a true cultural phenomenon Taylor Swift.
Speaker Change: When her blockbuster concert film debuts on Disney plus on March 15th It will feature the concert in its entirety, including the song Cardigan and four additional acoustic songs, which were not in the theatrical or digital purchase release of the film.
Robert A. Iger: When her blockbuster concert film debuts on Disney Plus on March 15th, it will feature the concert in its entirety, including the song Cardigan and four additional acoustic songs which were not in the theatrical or digital purchase release of the film. We know audiences are going to absolutely love the chance to relive the electrifying Taylor Swift era tour, her version, whenever they want on Disney+. Turning to our film studios, we have an incredibly robust slate of new releases as we continue revitalizing our creativity. Just consider the lineup of titles we will release through the end of 2026. This year we have Kingdom of the Planet of the Apes, Inside Out 2, Deadpool 3, Alien Romulus, and Mufasa the Lion.
Speaker Change: We know audience theyre going to absolutely love the chance to relive the electrifying Taylor Swift areas tour Taylor's version whenever they want on Disney plus.
Speaker Change: Turning to our film studios, we have an incredibly robust slate of new releases as we continue revitalizing our creativity.
Speaker Change: Just consider the lineup of titles, we will release through the end of 2026.
Speaker Change: This year, we have kingdom of the planet of the apes inside out to Deadpool, three Elliot Romulus and Mufasa the Lion King.
Speaker Change: As I mentioned at the top of the call. This November we will release a feature length animated sequel to Moana. This was originally developed as a series, but we were impressed with what we saw and we knew it deserved a theatrical release the original Moana film from 2016 recently crossed 1 billion hours streamed on Disney.
Speaker Change: Plus it was the most stream movie of 2023 on any platform in the U S.
Robert A. Iger: As I mentioned at the start of the call, this November, we'll release a feature-length animated sequel to Moana. This was originally developed as a series, but we were impressed with what we saw, and we knew it deserved a theatrical release. The original Moana film from 2016 recently crossed 1 billion hours streamed on Disney Plus and was the most streamed movie of 2023 on any platform in the U.S. Along with a live action version of the original film that's currently in development, Moana remains an incredibly popular franchise, and we can't wait to give you more of Moana and Maui when Moana 2 comes to theaters this November.
Speaker Change: Along with a live action version of the original film. That's currently in development Moana remains an incredibly popular franchise and we can't wait to give you more of a wanna in Maui when wanted to comes to theaters. This November.
Speaker Change: Looking to our 2025 theatrical slate, we're excited to bring audiences Captain America Brave New World Fantastic four Pixar as Leo.
Speaker Change: Topeka to an avatar three.
Speaker Change: And we're already looking forward to 2026 and beyond with frozen II. The first toy story movies since 2019, and a new Star Wars movie that brings the Manda Lorean and grow go to the big screen for the very first time.
Speaker Change: These films will not only reach global audiences in theaters, but as we've consistently demonstrated they will become important anchors on our global streaming platforms driving subscriptions and engagement, while also continuing to fuel growth in our experiences business.
Robert A. Iger: Looking to our 2025 theatrical slate, we're excited to bring audiences Captain America, Brave New World, Fantastic Four, Pixar's Elio, Zootopia 2, and Avatar 3. And we're already looking forward to 2026 and beyond with Frozen 3, the first Toy Story movie since 2019, and a new Star Wars movie that brings the Mandalorian and Grogu to the big screen for the very first time. These films will not only reach global audiences in theaters, but, as we've consistently demonstrated, they will become important anchors on our global streaming platforms, driving subscriptions and engagement, while also continuing to fuel growth in our experiences business. After all, one of the things that truly sets Disney apart is our unique ability to turn top-quality IP into top-quality experiences, leading to significant growth.
After all one of the things that truly sets Disney apart is our unique ability to turn top quality IP into top quality experiences leading to significant growth.
Speaker Change: That was certainly true this quarter.
Speaker Change: Every one of our parks was profitable in Q1, giving us an incredibly solid foundation to build upon as we invest significantly the turbocharge growth in this business.
Speaker Change: We've had a tremendous response from guests visiting our newly opened world of frozen at Hong Kong Disneyland as well as our first ever Zootopia land at Shanghai Disney Resort and.
Speaker Change: And as I've said before we also have so many untapped stories just waiting to be brought to life in our parks across the globe as we continue to invest in this extraordinary business.
Speaker Change: But it's not just our parks, where we're creating new opportunities for consumers to engage with the characters and franchises they love.
Speaker Change: Our new relationship with epic games will create a transformational games and entertainment universe that integrates Disney's World class storytelling into epic's cultural phenomenon fortnite, enabling consumers to play watch create and shop for both digital and physical goods.
Robert A. Iger: That was certainly true this quarter. Every one of our parks was profitable in Q1, giving us an incredibly solid foundation to build upon as we invest significantly to turbocharge growth in this business. We've had a tremendous response from guests visiting our newly opened World of Frozen at Hong Kong Disneyland as well as our first ever Zootopia Land at Shanghai Disney Resort.
Speaker Change: This March Disney's biggest entry ever into the world of video games and offers significant opportunities for growth and expansion.
Speaker Change: The new immersive universe will allow fans to unleash their own creativity and experience the Disney stores and worlds that they love and groundbreaking new ways.
Speaker Change: Younger audiences in particular are huge consumers of video games in fact, among millennials Gen Z and Gen. Alpha a significant amount of time spent on screen based platforms is playing video games. This new universe from Disney and Epic provides us with a tremendous opportunity to not only meet more consumers where they are.
Robert A. Iger: And as I've said before, we also have so many untapped stories just waiting to be brought to life in our parks across the globe as we continue to invest in this extraordinary. But it's not just our parks where we're creating new opportunities for consumers to engage with the characters and franchises they love. Our new relationship with Epic Games will create a transformational games and entertainment universe that integrates Disney's world-class storytelling into Epic's cultural phenomenon, Fortnite, enabling consumers to play, watch, create, and shop for both digital and physical goods. This marks Disney's biggest entry ever into the world of video games and offers significant opportunities for growth and expansion. The new immersive universe will allow fans to unleash their own creativity and experience the Disney stories and worlds that they love in groundbreaking new ways. Younger audiences, in particular, are huge consumers of video games. In fact, among millennials, Gen Z, and Gen Alpha, a significant amount of time spent on screen-based platforms is playing video games.
But to allow more audiences to cultivate a bond with Disney's iconic brands and franchises, including Marvel Star Wars and much more.
Speaker Change: Looking at the renewed strength of our businesses this quarter from sports to entertainment to experiences. The stage is now set for significant growth and success.
Speaker Change: In that regard, we see ample opportunity to increase shareholder returns is our earnings and free cash flow continue to grow.
Speaker Change: Our current position of strength and confidence in our path ahead already led us to pay a dividend to our shareholders last month.
Speaker Change: And I am pleased to share that the board declared that our next semi annual dividend to be paid in July will be 50% higher versus the last dividend paid in January.
Speaker Change: The Board has also authorized the company to begin repurchasing shares for the first time since fiscal 2018, and we plan to start by targeting $3 billion. This fiscal year.
Speaker Change: As we continue to invest in our growth businesses and maintain our strong balance sheet. We also expect to prioritize dividend payments and share repurchases in the coming years.
I am proud of our company's remarkable achievements and I am grateful to a deep bench of seasoned executives, who are helping guide Disney into the future and that includes Hugh Johnston, our new CFO, who has already proven to be an outstanding addition to the team we feel very fortunate to have you with us and now to.
Robert A. Iger: This new universe from Disney and Epic provides us with a tremendous opportunity to not only meet more consumers where they are, but to allow more audiences to cultivate a bond with Disney's iconic brands and franchises, including Marvel, Star Wars, and much more. Considering the renewed strength of our businesses this quarter, from sports to entertainment to experiences. The stage is now set for significant growth and success. In that regard, we see ample opportunity to increase shareholder returns as our earnings and free cash flow continue to grow. Our current position of strength and confidence in our path ahead already led us to pay a dividend to our shareholders last month, and I'm pleased to share that the board declared that our next semi-annual dividend to be paid in July will be 50% higher versus the last dividend paid in January. The board has also authorized the company to begin repurchasing shares for the first time since fiscal 2018, and we plan to start by targeting three billion dollars this fiscal year.
Hugh Johnston: Take you through more of our results this quarter I'll turn things over to Hugh.
Hugh Johnston: Thanks, Bob I joined Disney a little over two months ago and the more I learned about this incredible company. The more excited I am about the opportunities ahead of us I'm looking forward to continuing to partner with Bob and our management team as we execute on our strategy with the goal of delivering significant consistent long term earnings.
Hugh Johnston: And free cash flow growth.
Hugh Johnston: We are very pleased with this quarter's financial results fiscal first quarter diluted earnings per share excluding certain items increased by 23% versus the prior year to $1 22 and segment operating margin increased by 350 basis points, reflecting both strong pricing and operating.
Hugh Johnston: Expense reductions.
Hugh Johnston: Both revenue and operating income at direct to consumer domestic ESPN and experiences all increased versus the prior year and operating income across each of our business segments grew nicely in part due to the diligent and ongoing cost efficiency work, we're driving throughout our businesses.
Robert A. Iger: As we continue to invest in our growth businesses and maintain our strong balance sheet, we also expect to prioritize dividend payments and share repurchases in the coming years. I'm proud of our company's remarkable achievements, and I'm grateful to a deep bench of seasoned executives who are helping guide Disney into the future. And that includes Hugh Johnston, our new CFO, who has already proven to be an outstanding addition to the team. We feel very fortunate to have him with us.
Hugh Johnston: As evidenced by the realization of over $500 million in SG&A and other operating expense savings across the enterprise and in the first quarter.
Hugh Johnston: Moving to our results by segment.
Hugh Johnston: The entertainment first quarter operating income more than doubled driven by significant improvement at direct to consumer.
Entertainment direct to consumer operating income improved by about $850 million versus the prior year and by nearly $300 million versus Q4 and.
Hugh F. Johnston: And now, to take you through more of our results this quarter, I'll turn things over to Hugh. Thanks, Bob. I joined Disney a little over two months ago, and the more I learn about this incredible company, the more excited I am about the opportunities ahead. I'm looking forward to continuing to partner with Bob and our management team as we execute on our strategy with a goal of delivering significant, consistent, long-term earnings and free cash flow. We are very pleased with this quarter's financial results. Fiscal first quarter diluted earnings per share, excluding certain items, increased by 23% versus the prior year to $1.22, and segment operating margin increased by 350 basis points, reflecting both strong pricing and operating expense reduction.
Hugh Johnston: <unk> revenue increased sequentially by over 10% benefiting from higher subscription and advertising revenue.
Hugh Johnston: Operating income in the first quarter was better than the guidance. The company gave in the last earnings call primarily due to expense favorability.
Hugh Johnston: Hulu subscribers increased by $1 2 million from Q4 to Q1, and Disney plus core subscribers decreased sequentially by $1 3 million in line with prior guidance driven by the expected temporary uptick in churn given the recent domestic price increases as well.
Hugh Johnston: As the end of the global summer promotion.
Hugh Johnston: Those impacts were partially offset by strong AD tiered net adds due to domestic growth as well as the launch in certain international markets in the first quarter.
Hugh Johnston: Domestically, we saw continued net additions to our bundled offerings in Q1, which as a reminder have significantly lower churn versus our standalone products.
Hugh F. Johnston: Both revenue and operating income at direct-to-consumer, domestic ESPN, and experiences all increased versus the prior year. And operating income across each of our business segments grew nicely, in part due to the diligent and ongoing cost-efficiency work we're driving throughout our business, as evidenced by the realization of over $500 million in SG&A and other operating expense savings across the enterprise in the first. Moving to our results by segment. At entertainment, first quarter operating income more than doubled, driven by a significant improvement at direct-to-consumer. Entertainment direct-to-consumer operating income improved by about $850 million versus the prior year and by nearly $300 million versus Q4, and revenue increased sequentially by over 10%, benefiting from higher subscription and advertising. Operating income in the first quarter was higher than the guidance the company gave in the last earnings call, primarily due to expenses.
Hugh Johnston: Disney plus core <unk> increased by 14 versus the prior quarter and by $1 seven versus the prior year, driven primarily by price increases.
We expect Disney plus core <unk> to increase in the second quarter due to the continued benefit of price increases, which should only be partially offset by the impact of adding charter's spectrum TV select subs to the Disney plus add tier.
Hugh Johnston: I'll note that we are being paid on all entitled Charter subs, which will also be a key driver of accelerated Disney plus core sub growth in Q2.
Hugh Johnston: We expect net adds of between five five and $6 million in the second quarter.
Hugh Johnston: Domestic net adds are expected to be in the seven $5 million range driven by charter entitlements net of cannibalization.
Hugh Johnston: In international core subs are expected to decrease modestly reflecting changes to certain wholesale deals and slightly elevated churn impacts from price increases.
Hugh Johnston: While subscriber growth will vary from quarter to quarter, we are confident in our prospects for ongoing sub growth over the longer term driven by the continued global strength of our content slate.
Hugh F. Johnston: Hulu subscribers increased by 1.2 million from Q4 to Q1, and Disney Plus Core subscribers decreased sequentially by 1.3 million in line with prior guidance, although driven by the expected temporary uptick in churn given the recent domestic price increases as well as the end of the global summer. Those impacts were partially offset by strong ad tier net ads due to domestic growth as well as the launch in certain international markets in the first quarter. Domestically, we saw continued net additions to our bundled offerings, which, as a reminder, has significantly lowered churn versus our stand-alone. Disney Plus Core ARPU increased by $0.14 versus the prior quarter and by $1.07 versus the prior year, driven primarily by
Hugh Johnston: Advancing our paid sharing efforts.
Hugh Johnston: Technology advances that are intended to improve our content promotion and discovery capabilities drive up engagement and lower churn.
Hugh Johnston: The impact of making Hulu content available on Disney plus for bundled subs and continued adoption of the bundled domestically, which should both increase engagement and lower churn a strategy. We will repeat in Latin America. This summer when we combined Disney plus and Star plus.
Hugh Johnston: And our continued use of hearing to provide subscribers with more choices.
Hugh Johnston: As it relates to the opportunity we see on page sharing beginning this summer Disney plus accounts suspected of improper sharing will be presented with new capabilities to allow their borrowers to start their own subscriptions.
Hugh Johnston: Later this calendar year account holders, who want to allow access to individuals from outside their household will be able to add them to their accounts for an additional fee.
Hugh F. Johnston: We expect Disney Plus core ARPU to increase in the second quarter due to the continued benefit of pricing, which should only be partially offset by the impact of adding Charter's Spectrum TV Select subs to the Disney Plus ads. I'll note that we are being paid on all entitled Charter subs, which will also be a key driver of accelerated Disney Plus core sub growth in games. We expect net ads of between 5.5 and 6 million in the second quarter. Domestic net ads are expected to be in the $7.5 million range, driven by charter entitlements net of cannibalization. And international core subs are expected to decrease modestly, reflecting changes to certain wholesale deals and slightly elevated churn impacts from prices.
While we are still in the early days and don't expect notable benefits from these paid sharing initiatives until the back half of calendar 2024, we want to reach as large an audience as possible with our outstanding content.
Hugh Johnston: And we're looking forward to rolling out this new functionality to improve the overall customer experience and grow our subscriber base.
Hugh Johnston: For Q2, we are expecting revenue at entertainment DTC to grow sequentially and anticipate that operating losses will be relatively in line with the first quarter.
Hugh Johnston: We still expect to reach profitability at our combined streaming businesses in Q4 of fiscal 2024 and have never been more confident about our path to creating a strong and sustainable streaming business with growing subscribers over the long term and ultimately double digit operating margins.
Hugh Johnston: Business, which we fully expect to be a key earnings growth driver for the company.
Hugh Johnston: Moving on to entertainment linear networks. The decrease in the first quarter operating income versus the prior year was due to lower advertising and affiliate revenues, partially offset by lower programming and production costs.
Hugh F. Johnston: While subscriber growth will vary from quarter to quarter, we are confident in our prospects for ongoing sub-growth over the longer term, driven by the continued global strength of our content slate, advancing our paid sharing efforts, and technological advances that are intended to improve our content promotion and discovery capabilities, drive up engagement, and lower churn. The impact of making Hulu content available on Disney Plus for Bundle Subs and Continued Adoption of the Bundle Domestically, which should both increase engagement and lower churn. A strategy we will repeat in Latin America this summer when we combine Disney+ and Star+ and our continued use of tiering to provide subscribers with more. As it relates to the opportunity we see in paid sharing, beginning this summer, Disney Plus accounts suspected of improper sharing will be presented with new capabilities to allow their borrowers to start their own. Later this calendar year, account holders who want to allow access to individuals from outside their household will be able to add them to their accounts for an additional fee.
Hugh Johnston: Lower domestic advertising revenue was driven primarily by lower impressions, including from strike related impacts. In addition to an adverse comparison to the prior year mid term related political advertising at our owned stations.
Hugh Johnston: Domestic entertainment affiliate revenue decreased by 5% in the first quarter versus the prior year as a five point benefit from higher rates was more than offset by a 10 point decline from fewer subscribers.
Hugh Johnston: Adjusted for the non carriage of certain networks at charter as a result of our recent deal with sub decline impact was closer to 7%.
Hugh Johnston: Lower programming and production costs benefited from strike related impacts and we also remain focused on driving ongoing cost efficiencies.
Hugh Johnston: At content sales licensing and other results came in lower versus the prior year and below the guidance we provided.
Hugh Johnston: Due to the performance of theatrical titles in the quarter.
Hugh Johnston: We do not have any new key theatrical releases in Q2 due to production delays stemming from the strikes and expect content sales licensing and other operating income to come in roughly breakeven for the quarter.
Hugh Johnston: Sports operating income improved versus the prior year due to strength at ESPN, partially offset by lower results at Star, India, driven by higher rights costs from airing of the ICC Cricket World Cup.
Hugh F. Johnston: While we are still in the early days and don't expect notable benefits from these page-sharing initiatives until the back half of calendar 2024, we want to reach as large an audience as possible with our outstanding content, and we're looking forward to rolling out this new functionality to improve the overall customer experience and grow our subscribers. For Q2, we are expecting revenue at Entertainment DTC to grow sequentially and anticipate that operating losses will be relatively in line with the We still expect to reach profitability at our combined streaming businesses in Q4 of fiscal 2024 and have never been more confident about our path to creating a strong and sustainable streaming business, with growing subscribers over the long-term and ultimately a double-digit operating margin, a business which we fully expect to be a key earnings growth driver.
Hugh Johnston: At domestic ESPN year over year growth was driven largely by a decrease in programming and production costs from the timing of college football playoff games.
Hugh Johnston: Domestic affiliate revenue in Q1 was comparable to the prior year is an increase of 6% from higher contractual rates was offset by a commensurate decrease from fewer subscribers.
Hugh Johnston: ESPN domestic AD sales in the quarter were down 2% versus the prior year, but up mid single digits when adjusted for various timing shifts and onetime impacts the.
Hugh Johnston: The strength, we're seeing gives us confidence that leaning into sports will continue to create value for our shareholders.
Hugh Johnston: Second quarter to date, we are seeing continued healthy advertising demand in the sports marketplace with domestic ESPN cash AD sales pacing up double digit percentage points versus the prior year.
Hugh Johnston: The trend is still solid even when adjusted for the CFP timing shift of an additional game as well as an extra NFL divisional game in Q2 this year.
Hugh Johnston: Our experiences business posted strong Q1 results with year over year operating income growth of 10% at parks experiences and 4% at consumer products.
Hugh Johnston: Record setting results. This quarter were primarily driven by our performance at Shanghai and Hong Kong theme Parks continued strength at Disney Cruise line and the success of Marvel's Spider Man two at our games business.
Hugh F. Johnston: Moving on to entertainment linear networks, the decrease in the first quarter operating income versus the prior year was due to lower advertising and affiliate revenues, partially offset by lower programming and production. Lower domestic advertising revenue was driven primarily by lower impressions, including from strike-related impacts, in addition to an adverse comparison to the prior-year mid-term related political advertising in our own state.
Hugh Johnston: And segment margins expanded by over 50 basis points versus the prior year and achievement delivered despite tough comparisons at Walt Disney World coming off its highly successful 50th anniversary celebration in the prior year and significant cost pressures driven by wage increases.
Hugh Johnston: We remain optimistic about the segment's continued top line and profit growth notwithstanding the tough comps domestically in Q2, and we still expect robust oi growth that experiences for the full year, we plan to invest approximately $60 billion into the business over the next 10 years.
Hugh F. Johnston: Domestic entertainment affiliate revenue decreased by 5% in the first quarter versus the prior year as a 5-point benefit from higher rates was more than offset by a 10-point decline from fewer subscribers. However, adjusted for the non-carriage of certain networks at Charter, as a result of our recent deal, the sub-decline impact was closer to seven. Lower programming and production costs benefited from strike-related impacts, and we also remain focused on driving ongoing costs. At content sales, licensing, and other, results came in lower versus the prior year and below the guidance we provide due to the performance of theatrical titles in the. We do not have any new key theatrical releases in Q2 due to production delays stemming from the strikes and expect content sales, licensing, and other operating income to come in roughly break-even.
Hugh Johnston: Of which approximately 70% is earmarked for incremental capacity expanding investments around the globe, which we expect to generate attractive returns.
Hugh Johnston: On a total company basis as Bob mentioned earlier, we are still on pace to meet or exceed our seven $5 billion annualized cost target by the end of fiscal 2024.
Hugh Johnston: I'm pleased with how this is tracking so far total expenses in Q1 were down 4% versus the prior year and the efficiencies. We have been realizing are a key contributor to that progress.
Hugh Johnston: And we are also still on track to generate about $8 billion in free cash flow this fiscal year.
Hugh Johnston: Putting all this together we are confident in the progress we are making and the path that puts us on to become a strong cash generator and earnings compound or starting in fiscal 2024 to that end, we expect full year fiscal 2024 earnings per share excluding certain items.
Hugh Johnston: Two increased by at least 20% versus 2023 to approximately $4 60.
You already heard from Bob about our updated plans for shareholder returns this year and as he mentioned, we intend to continue investing in our growth businesses, while also maintaining a balanced and disciplined approach to capital allocation and with that we're happy to take your questions.
Hugh F. Johnston: Sports operating income improved versus the prior year due to strength at ESPN, partially offset by lower results at Star India, driven by higher rights costs from airing the ICC cricket match. At domestic ESPN, year-over-year growth was driven largely by a decrease in programming and production costs from the timing of the college football playoffs. Domestic affiliate revenue in Q1 was comparable to the prior year, as an increase of 6% from higher contractual rates was offset by a commensurate decrease from fewer subscribers. ESPN domestic ad sales in the quarter were down 2% versus the prior year, but up mid-single digits when adjusted for various timing shifts and one-time investments.
Thanks, you 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 too many ounces possible today and with that operator, we're ready for the first question.
Hugh Johnston: And as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Hugh Johnston: That's what anytime your question has been addressed and you'd like to withdraw your question. Please press Star then two.
Hugh Johnston: Today's first question comes from Ben Swinburne with Morgan Stanley. Please go ahead.
Benjamin Daniel Swinburne: Thank you good afternoon.
Benjamin Daniel Swinburne: Had a lot of a lot of news for us to Chew on Tonight I wanted to maybe start Bob is asking you about sports since you led with that you guys have a lot going on with ESPN new channels package flagship.
Hugh F. Johnston: The strength we are seeing gives us confidence that leaning into sports will continue to create value for our students. For the second quarter to date, we are seeing continued healthy advertising demand in the sports market. Domestic ESPN Cash Ad Sales Pacing Up Double-Digit Percentage Points Versus the Priority The trend is still solid, even when adjusted for the CFP timing shift of an additional game as well as an extra NFL divisional game in January. Our Experiences business posted strong Q1 results, with year-over-year operating income growth of 10% at Parks and Experiences and 4% at Consumer Record setting results this quarter were primarily driven by our performance at Shanghai and Hong Kong theme parks, continued strength at Disney Cruise Line, and the success of Marvel's Spider-Man 2 at our game, and segment margins expanded by over 50 basis points versus the prior.
Benjamin Daniel Swinburne: Having conversations can you kind of put it all into context for us.
Benjamin Daniel Swinburne: Youre sort of thinking about these different products and whether they address different parts of the market and what your priorities are between the two and really what are we what is success.
Benjamin Daniel Swinburne: Disney shareholders in sports, how do we think about that kind of financially and strategically and I was just wondering if you had an update for us on expense growth. This year I think you guys guided to slight growth overall in 24 last quarter. It seems like you're on track with.
Benjamin Daniel Swinburne: With your savings program, so any update to that would be it would be appreciated. Thanks. So much.
Hugh F. Johnston: An achievement delivered despite tough comparisons at Walt Disney World coming off its highly successful 50th anniversary celebration in the prior year and significant cost pressures driven by wage increases. We remain optimistic about the segment's continued top line and profit, notwithstanding the tough comps domestically in Q2, and we still expect robust OI growth that will experience for the full year. We plan to invest approximately $60 billion in the business over the next 10 years, of which approximately 70% is earmarked for incremental capacity expansion investments around the globe, which we expect to generate a track record. On a total company basis, as Bob mentioned earlier, we are still on pace to meet or exceed our $7.5 billion annualized cost target by the end of fiscal 2020. I'm pleased with how this is tracking so far. Total expenses in Q1 were down 4% versus the prior year.
Speaker Change: Thanks Ben.
Speaker Change: <unk> me to throw a couple of cliches your way, but as you know ESPN is always aim to serve the sports fan effectively no matter, where the sports fan is and so all of the steps that we've been taking and that we.
Speaker Change: <unk> today and then we will continue to take are aimed at doing just that and when you think about today's environment, where you've obviously got some challenges in linear television a lot more competition, both for People's time, and just specifically in sports and you think about the fact that ESPN finished 23 in really good shape ratings continue to.
Speaker Change: Our eyes are sports is still an advertiser's delight you have to consider that ESPN has been successful and what their primary goal was there reaching sports fans effectively which is why advertisers and distributors and sports leagues and organizations feel they have to kind of be part of our partnered with ESPN.
Speaker Change: As we look to the future. We're obviously mindful of won the state of the multichannel ecosystem too where people are spending their time and their money with media.
Hugh F. Johnston: And the efficiencies we've been realizing are a key contributor to that. And we are still on track to generate about $8 billion in free cash flow this fiscal year. Putting all this together, we are confident in the progress we are making and the path it puts us on to become a strong cash generator and earnings compounder starting in fiscal 2020. To that end, we expect full year fiscal 2024 earnings per share, excluding certain items, to increase by at least 20% versus 2023 to approximately $4.00 an share. You already heard from Bob about our updated plans for shareholder returns this year, and as he mentioned, we intend to continue investing in our growth business, while also maintaining a balanced and disciplined approach to capital allocation.
Speaker Change: And you have to basically serve them effectively there we've been saying for a long time, they're taking ESPN in the direct to consumer direction was inevitable and that we were looking for partners to do so this is really not a first step as a second step. The first step was launching ESPN plus some years ago, which is actually.
Speaker Change: <unk> been quite successful the second step is finding these partners to distribute basically the equivalent of a multichannel sports centric tier.
Speaker Change: The App. So one we're serving sports fans well two we're doing it with partners three we're doing it in a more modern way rather than cable and satellite in this case, its app based and Thats a big step for us because we know that there are a number of people who have never signed up for multichannel TV. This gives them the chance to do so at a price point.
Hugh F. Johnston: And with that, we're happy to take questions. Thanks, Hugh. 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 answers as possible today. And with that, operator, we're ready for the first question. Thank you, and as a reminder, if you'd like to ask a question, please press star then 1 on your telephone keypad. If at any time your question has been addressed and you'd like to withdraw your question, please press star then enter.
Speaker Change: It will be obviously more attractive than the big fat bundle to there are people, who have left that ecosystem because they didn't want all of those channels are that cost and this is a way of basically.
Speaker Change: Preserving our relationship we're creating one with those that are no longer part of the multichannel ecosystem.
Speaker Change: The next step after this and we announced today that we'll launch it in probably August of 'twenty five.
Speaker Change: Is to bring out ESPN flagship I say on its own but it will be bundled ultimately with Hulu and Disney plus and that will be a very very immersive very obviously sports centric app, which will have features that this.
Operator: Today's first question comes from Ben Swinburne with Morgan Stanley. Thank you. Good afternoon.
Benjamin Daniel Swinburne: You guys had a lot of news for us to chew on tonight. I wanted to maybe start, Bob, asking you about sports since you led with that. You guys have a lot going on with ESPN, the new channel package, flagship, obviously having conversations. Can you put it all into context for us and how you're thinking about these different products and whether they address different parts of the market and what your priorities are between the two? Really, what is success?
Speaker Change: Combination with Fox and with.
Speaker Change: With turnover time, Warner Discovery will not have such as integrated betting integrated fantasy likely to have some sales our merchandising capabilities, obviously deep dive into stats and high degree of customization and personalization.
Speaker Change: Again, another fee kind of feature that will bring out to engage with sports fans I can't tell you right now how that ultimately will fit into all of this except it will be a progression we haven't really talked much about how it will be further how it will be bundled except with our own services, but I think success will be for us in this basic.
Robert A. Iger: for Disney shareholders in sports. How do we think about that, kind of financially and strategically? And I was just wondering if you had an update for us on expense growth this year. I think you guys guided to slight growth overall in 24 last quarter. Seems like you're on track with your savings program. So any update on that would be appreciated. Thanks so much.
Speaker Change: The migration would be to maintain espn's position in sports in general and the affinity that as fans have with ESPN and the attractiveness of ESPN to advertisers and sports leagues that simple.
Speaker Change: Brian.
Robert A. Iger: Thanks, Ben. Permit me to throw a couple of clichés your way. But, as you know, ESPN has always aimed to serve the sports fan effectively no matter where the sports fan is. And so all of the steps that we've been taking and that we announced today and that we will continue to take are aimed at doing just that. And when you think about today's environment, where you obviously have some challenges in linear TV, a lot more competition both for people's time and just specifically in sports, and you think about the fact that ESPN finished 23 in really good shape, ratings continue to rise, sports is still an advertiser's delight, you have to consider that ESPN has been successful in what its primary goal was.
Speaker Change: I'll take the cost side Ben.
Speaker Change: You are right in the past, we've talked about slight growth in operating expenses year over year. We obviously have terrific momentum on cost management coming out of the first quarter and that the team is relentlessly looking for further opportunities to drive cost savings both to reinvest back into the business to continue the growth momentum that we have as.
Speaker Change: Well as deliver margin growth to the bottom line net no change in guidance versus what we said previously we should do at least as well as the guidance. We previously committed to which was slight growth in operating expenses year over year.
Speaker Change: Okay. Thanks, Dan Operator next question please.
Speaker Change: Absolutely. Our next question today comes from Michael Nathanson with Moffett Nathanson. Please go ahead.
Michael Brian Nathanson: Thanks, one for you Bob one for you.
Michael Brian Nathanson: Bob.
Michael Brian Nathanson: Answering bens question, we're still.
Michael Brian Nathanson: I'm wondering how does who lives into long term picture here.
Robert A. Iger: They're reaching sports fans effectively, which is why advertisers and distributors and sports leagues and organizations feel they have to kind of be part of or partnered with ESPN. As we look to the future, we're obviously mindful of one, the state of the multi-channel ecosystem, and two, where people are spending their time and their money on media. And you have to basically serve them effectively there.
Michael Brian Nathanson: Stopped growing Youtube is twice the size when you think about the future of your offerings.
Michael Brian Nathanson: And to what you just announced.
Michael Brian Nathanson: Direct over the top ESPN and sports bundle and then for you.
Michael Brian Nathanson: You broke the news to our double digit margin target for streaming any help on a timetable that gets us there or what factors do you think will drive you from here to double digits next couple of years. Thanks.
Michael Brian Nathanson: As you know Hulu live is more reflects the bigger fatter bundle of TV channels.
Michael Brian Nathanson: Like many of the services that are out there just happens to be integrated or attached to.
Robert A. Iger: We've been saying for a long time that taking ESPN in the direct-to-consumer direction was inevitable and that we were looking for partners to do so. This is really not a first step; it's a second step. The first step was launching ESPN Plus some years ago, which has actually been quite successful. The second step was finding these partners to distribute basically the equivalent of a multi-channel sports-centric tier via app. So one, we're serving sports fans well, two, we do it with partners, and three, we do it in a more modern way, rather than cable and satellite; in this case, it's an app-based service. And that's a big step for us because we know that there are a number of people who have never signed up for multi-channel television. This gives them a chance to do so at a price point that will be obviously more attractive than the big fat bundle.
Michael Brian Nathanson: Hulu.
Michael Brian Nathanson: If you if you subscribe to it.
Michael Brian Nathanson: So in a way I guess, you would argue competes with Hulu live directly but it doesn't compete with Hulu because this will be bundled with Hulu. So if euro Hulu subscriber and you want to get this new sports service you can buy that as an add on to Hulu and as we see it thats a real positive.
Michael Brian Nathanson: Because if you consider the fact that Disney plus and Hulu will be together once we come out of beta in March already together in beta and then you add a sports feature with so many sports that this new joint venture will offer that's very very compelling in terms of reducing churn for Hulu and increasing engagement.
Michael Brian Nathanson: So we look at this as a huge positive for Hulu.
Michael Brian Nathanson: We are realistic about Hulu live in terms of the impact this could have but that Hulu live is.
Michael Brian Nathanson: Certainly a nice important feature of our Hulu business, but the critical part of that business is Hulu itself.
Robert A. Iger: Two, there are people who have left that ecosystem because they didn't want all those channels or that cost. And this is a way of basically preserving a relationship or creating one with those that are no longer part of the multi-channel ecosystem. The next step after this, and we announced today that we'll launch it probably on August 25, is to bring out ESPN flagship. I say on its own, but it will be bunched ultimately with Hulu and Disney Plus, and that will be a very, very immersive, obviously sports-centric app, which will have features that this combination with Fox and with Turner Time Warner Discovery will not have, such as integrated betting, integrated fantasy, likely to have some sales arm or merchandise capabilities, obviously deep dives into stats, and a high degree of customization and personalization.
Michael Brian Nathanson: Yeah.
Speaker Change: And Michael I'll take the question on DTC profitability and double digit yes.
Speaker Change: First time, we put out that our objective is to get to double digit margins.
Speaker Change: In some ways it probably shouldn't be a surprise to investors because the goal has always been to build what I would characterize it as a good business. What is a good business look like number one it's got growing subscribers and number two it has attractive margins, which we're defining as double digit. So I know in a sense, it's news, but in a sense. It shouldnt be news because we've always wanted to build a good business in that regard.
Speaker Change: In terms of how we get there it's really in many ways the way that we've gotten from where we were to the point. We're at right now number one we're going to grow subscribers number two you will see some level of pricing and both of those things will probably be similar to what you've seen over the last couple of years, maybe a slightly different balance, but roughly similar and then we will.
Robert A. Iger: Again, another kind of feature that we'll bring out to engage with sports fans. I can't tell you right now how that ultimately will fit into all of this, except it will be a progression. We haven't really talked much about how it will be further, how it will be bundled, except with our own services. But I think success for us in this basically migration would be to maintain ESPN's position in sports in general and the affinity that its fans have with ESPN and the attractiveness of ESPN to advertisers and sports leagues. That's it.
Speaker Change: I actually get some leverage out of marketing spend content and technology spend all of those will grow a little bit less at a lesser rate than the rate that the rate of revenue growth.
Speaker Change: In terms of the specifics on how do we get there with sub growth I think it'll be a couple of things number one paid sharing is an opportunity for us. It's one that our competitor has obviously taken advantage of and one that sits in front of us and we've got some very specific actions that we're taking in the next couple of months, which I discussed earlier, which will benefit us.
Hugh F. Johnston: Right. I'll take the cost side, Ben. You're right.
Speaker Change: To some degree in the back half of this year and very much next year number two we will see lower churn with the bundle. So that we're looking to put out.
Hugh F. Johnston: In the past, we've talked about slight growth in operating expenses year over year. We obviously have terrific momentum on cost management coming out of the first quarter, and the team is relentlessly looking for further opportunities to drive cost savings, both to reinvest back in the business to continue the growth momentum that we have, as well as to deliver margin growth to the bottom line. No change in guidance versus what we said previously; we should do at least as well as the guidance we previously committed to, which was a slight growth in operating expenses year over year. Thanks, Ben. Operator, next question please.
Number three international remains a growth opportunity for us. So if you put all of those pieces together, it's kind of doing a lot of what we've been doing with maybe some slightly different tactics to get to a level that again, we would characterize as a good business not going to put a specific timeframe on that right. Now some of that is going to be driven by the marketplace. Just know that we see.
A sense of urgency in getting there and thats, probably the way we're going to operate the business, we will feel urgency, but only to get to a good sustainable business.
Speaker Change: Thank you operator next question please.
Speaker Change: Next question today comes from Jessica Reif Ehrlich with Bank of America Securities. Thank you. Thank you.
Speaker Change: Guys, how much ground Tonight.
So I have one question and two follow ups.
Operator: Absolutely. Our next question today comes from Michael Nathanson with Moffett Nathanson. Please go ahead. Thanks. One for you, Bob. One for you, you. Bob, answering Ben's question, we're still, you know, kind of wondering, how does Hulu Live fit into the long-term picture here, right? It's stopped growing.
Speaker Change: You announced for the first time I've heard you say this that in parks.
Speaker Change: 90% of the 60 billion in Capex that you outlined over the next 10 years.
Speaker Change: I'm, sorry that 70% of that will go to incremental capacity, so like over $40 billion and new parks and attractions can you give us some color on timing and location Theres been speculation that you may open a fifth gate in Florida, and then just a follow up to a couple of things just had one on pay churn crack down which came up twice.
Michael Brian Nathanson: YouTube is twice the size. I mean, think about the future of your offerings. How does that fit into what you just announced with, you know, direct over-the-top ESPN and then the sports bundle? And then, for you, you broke some news too with a double-digit margin target for streaming. Any help on a timetable that gets us there?
Speaker Change: Have you sized the number of borrowers.
Speaker Change: And on the sports JV.
Speaker Change: How do you plan to attract non pay TV subs to what sounds like it might be an expensive sports service without a significant decrease in traditional pay TV sub two would actually save money.
Robert A. Iger: Or what factors do you think will drive you from here to double digits in the next couple of years? Thanks. As you know, Hulu Live more reflects the bigger, fatter bundle of television channels. Like many other services that are out there, it just happens to be integrated or attached to Hulu if you subscribe to it.
Speaker Change: How do you not cannibalize.
Speaker Change: Okay.
Speaker Change: You asked a lot of questions on a lot of different subjects I'll take the first one on parks timing and location.
Speaker Change: We're already hard at work at Bay.
Speaker Change: Basically.
Speaker Change: Determining where we're going to place our new investments and what they will be you can pretty much conclude that there'll be all over meaning every single one of our locations will be the beneficiary of increased investment and thus increased capacity, including on the high seas, where we're currently building three more ships.
Robert A. Iger: So this, in a way, I guess you'd argue, competes with Hulu Live directly, but it doesn't compete with Hulu because this will be bundled with Hulu. So if you're a Hulu subscriber and you want to get this new sports service, you can buy that as an add-on to Hulu. And as we see it, that's a real positive because if you consider the fact that Disney Plus and Hulu will be together once we come out of beta in March, they're already together in beta, and then you add a sports feature with so many sports that this new joint venture will offer, that's very, very compelling in terms of reducing churn for Hulu and increasing engagement. So we look at this as a huge You know, we're realistic about Hulu Live in terms of the impact this could have, but, you know, Hulu Live is certainly a nice, important feature of our Hulu business, but the critical part of that business is Hulu itself.
Speaker Change: In a business that is obviously extremely positive to us we may look expansively at least in the next decade.
Speaker Change: In that direction I'm, not going to really give you much more of a sense of timing except that we're hard at work at getting these things basically conceived and built.
Speaker Change: And we've got a menu of things that will basically start opening in 'twenty, five and there'll be a cadence every year of additional basically additional investment and increase capacity.
Speaker Change: I'll, let you take care of the paid sharing Hugh yes on the sports service in the pricing I think the way you have to look at it as the sports service is going to be substantially less expensive to consumers than the big bundle that they'd have to buy to get those same channels on cable and satellite.
Hugh F. Johnston: And Michael, I'll take the question on DTC profitability and double-digit margins. Yeah, I know we, for the first time, put out that our objective is to get to double-digit margins. In some ways, it probably shouldn't be a surprise to investors, because the goal has always been to build what I would characterize as a good business. What does a good business look like?
Speaker Change: And again designed for.
Speaker Change: Two things one we believe there are a number of sports fans out there that want to watch sports on TV, but didn't want to sign up to the big cable and satellite bundle.
Speaker Change: So we think they will be accretive to us we also believe that either.
Speaker Change: Consumers have less the bundle because it wasn't serving them well or they may leave the bundle and we want to make sure that we grab them too. So we view this whole thing as one being a good proposition for sports fans because of the cost and certainly being positive for us because of the dynamics in the marketplace right now.
Hugh F. Johnston: Number one, it's got growing subscribers. And number two, it has attractive margins, which we're defining as double digits. So I know, in a sense, it's news, but in a sense, it shouldn't be news, because we've always wanted to build a good business in that regard. In terms of how we get there, it's really, in many ways, the way that we've gotten from where we were to the point we're at right now. Number one, we're going to grow our subscriber base. Number two, you'll see some level of pricing. And both of those things will probably be similar to what you've seen over the last couple of years, maybe a slightly different balance, but roughly similar. And then we'll actually get some leverage out of marketing spend, content, and technology spend. All of those will grow a little bit less at a lower rate than the rate of revenue growth.
Speaker Change: Okay, Jessica I'll handle the paid sharing question.
Speaker Change: Had sized it I don't want to put a specific number out there right now because these numbers are obviously rough estimates anyway suffice to say that the opportunity that we see on a percentage basis, probably isn't all that dramatically different from what our competitor has found in terms of their subscriber base in terms of getting at it Theres a couple of action.
Speaker Change: Or is that we've taken in order to do that number one we have some made some changes to the user language that we have in the U S, Canada and certain markets. So that will actually have the opportunity to act on the paid sharing opportunity.
Speaker Change: Number two.
Speaker Change: The accounts that we think are doing unpaid sharing right now we'll get communication. This summer and we will give them opportunities to allow their borrowers to start new subscriptions and then later this year. We will actually also have account holders who want to allow further individuals to access their account from outside the household there'll be.
Hugh F. Johnston: In terms of the specifics on how we get there with sub growth, I think it'll be a couple of things. Number one, paid sharing is an opportunity for us. It's one that our competitor has obviously taken advantage of and one that sits in front of us.
Speaker Change: To access the account, but there'll be able to do so for an additional fee. So we've got a number of tactical actions to take in order to take advantage of what we think is a pretty good sized opportunity in front of us and it's one of the things that gives us confidence in our subscriber growth numbers.
Hugh F. Johnston: And we've got some very specific actions that we're taking in the next couple of months, which I discussed earlier, which will benefit us to some degree in the back half of this year and very much next year. Number two, we'll see lower churn with the bundles that we're looking to put out. Number three, international remains a growth opportunity for us. So if you put all of those pieces together, it's kind of doing a lot of what we've been doing with maybe some slightly different tactics to get to a level that, again, we would characterize as a good business. I am not going to put a specific timeframe on that right now.
Speaker Change: Thank you operator next question. Please thank you and our next question comes from Steven Cahall with Wells Fargo. Please go ahead.
Steven Cahall: Thank you so Bob you mentioned a lot of content in your remarks. It seems like the operations are really starting to Hum again, but I think the lifeblood of the company is always going to be the studio output. It drives so much culture I think that's an area you've said that you've been spending a lot of time on do you feel like the content is also now turning the corner like you've seen in <unk>.
Steven Cahall: In the operations and if so when do you think we might see some of the results of that renewed focus on the studio output and then Hugh I think the inevitable question with the buyback announcement is about you expect you might end up ultimately paying for Hulu. Just wondering if you have any sense on the timing of that outcome, our situation and related to that I think the ixia.
Hugh F. Johnston: Some of that is going to be driven by the marketplace. Just know that we feel a sense of urgency in getting there. And that's probably the way we're going to operate the business. We'll feel urgency, but only to get to a good, sustainable business. Thank you. Operator, next question, please.
Steven Cahall: <unk> seven $5 billion in savings is a bit new.
Speaker Change: Curious, where you found those extra buckets of cost savings. Thank you.
Stephen I feel great about where we are with the studio.
Speaker Change: Let's not lose sight of the fact that in the last year. The studio had some real success not to suggest that we didn't have some of the films that were not successful that we were really disappointed in but we also had some great success to the Guardian sequel, and Avatar at the end of calendar 'twenty, two but part of fiscal 'twenty three.
Operator: Our next question today comes from Jessica Ehrlich with Bank of America Securities. Thank you. Thank you. You guys covered so much ground tonight.
Jessica Reif Ehrlich: So I have one question and two follow-ups. You announced, or for the first time I've heard you say this, that in parks, 70% of the $60 billion in CapEx that you outlined over the next 10 years will go to incremental capacity, so, like, over $40 billion in new parks and attractions. Can you give us some color, timing, and location?
Speaker Change: One of the things that I've been saying before is that volume sometimes can be.
Speaker Change: Detrimental to quality and in our zeal to.
Lately increased volume, partially tied to just wanting to chase more global subs for a streaming platform. So all of our studios lost a little focus so the first step that we've taken is that we've reduced volume we've reduced output, particularly at marvell when you fix or when you address these issues with and moving as you do three things you'd get aggressive it.
Robert A. Iger: There's been speculation that you may open a fifth gate in Florida. And then, just a follow-up to a couple things you said. One, the unpaid sharing crackdown, which came up twice. Have you sized up the number of borrowers? And on the sports JV, how do you plan to attract non-pay TV subs to what sounds like it might be an expensive sports service without a significant decrease in traditional pay TV subs who would actually save money? Like, how do you not counterbalance?
Speaker Change: Making sure the films Youre, making can be even better.
Sometimes you kill projects you don't believe and of course, you've put new things in the pipeline that you do believe in that you have much more confidence in and we're doing all of that I've also observed over the years that managing creativity, sometimes is best done with great partnerships and I have established great partnerships with the people at our company.
Speaker Change: Really manage their creativity, Alan Bergman the studio Dana Walden on the TV side, Jimmy Pitaro at.
Robert A. Iger: Okay, you asked a lot of questions on a lot of different subjects. I'll take the first one on parks, timing, and location. You know, we're already hard at work determining where we're going to place our new investments and what they will be. You can pretty much conclude that they'll be everywhere, meaning every single one of our locations will be the beneficiary of increased investment and thus increased capacity, including on the high seas, where we're currently building three more ships. And in a business that is obviously extremely positive to us, we may look expansively, at least in the next decade, in that direction. I'm not going to really give you much more of a sense of timing except that, you know, we're hard at work at getting these things, you know, basically conceived and built.
Speaker Change: SPN and the partnership that Alan and I have is a strong one and we believe that the time that I am now devoting to this and the attention that the two of US are giving this business not only will bear fruit, but it's already starting to we're very bullish about the films coming out we mentioned inside out to when we talked about Deadpool and.
Speaker Change: And the planet of the Apes films, we feel good about that obviously the end of the calendar year. We've got mufasa prequel Lion King we are very excited about the addition of Moana, which is the number was the number one stream movie.
Speaker Change: Across all streamers in the U S. In 2003 and is it over 1 billion hours of consumption on Disney plus and Thats now going to be released in November and then I mentioned, what we're doing after that I'd say, we're leaning a little bit more into sequels and franchises. Some that we feel great about like toy story as a for instance, obviously.
Robert A. Iger: And we've got a menu of things that will basically start opening in 2025, and there'll be a cycle every year of additional, basically additional investment and increased capacity. I'll let you take care of the paid sharing, Hugh. On the sports service and the pricing, I think the way you have to look at it is that the sports service is going to be substantially less expensive for consumers than the big bundle that they'd have to buy to get those same channels on cable and satellite. And again, designed for two things. One, we believe there are a number of sports fans out there that want to watch sports on television but don't want to sign up for the big cable and satellite bundle.
Speaker Change: <unk> Wars Avatar, we've talked about Marvel is starting to focus on some of its stronger franchises going forward, but I'll leave it at that and I think given the environment and given what it takes to get people out of their homes to CFM doing that leaning on franchises that are familiar is actually a smart thing. So we've got work to do still.
Speaker Change: Not resting on our laurels or sitting on our hands, we are working hard at it but.
Speaker Change: I feel quite good about the trajectory right.
Speaker Change: Alright, Steve from from my perspective regarding Hulu timing on that we've got a pretty clearly defined process that process is going to take a little bit of time based on the work that needs to go into valuing the business.
Steve: Would expect before we get to the end of the year that we should have this figure it out and closed.
Steve: Regarding cost savings, it's pretty well spread out across the board one of the things you tend to find is when a company goes on on a cost effort. Once you start to build momentum on that people tend to find additional opportunities and thats what gives us the confidence around the numbers to at least meet if not exceed them. So no no one specific area its content.
Robert A. Iger: And so we think they will be attractive to us. We also believe that either consumers have left the bundle because it wasn't serving them well, or they may leave the bundle, and we want to make sure that we grab them too. So we view this whole thing as one, being a good proposition for sports fans because of the cost and certainly being positive for us because of the dynamics in the marketplace right now. Okay, and Jessica, I'll handle the paid-for viewing question. We have sized it. I don't want to put a specific number out there right now because these numbers are obviously rough estimates anyway.
Steve: Side as well as the SG&A side I think we just have momentum on managing our expenses more tightly which is great news I think for investors.
Speaker Change: Thank you operator next question please.
Speaker Change: And our next question today comes from Bryan Kraft with Deutsche Bank. Please go ahead.
Bryan Kraft: Hi, good afternoon.
Bryan Kraft: Since there's so much discussion about bundling and distribution I was wondering if I could ask you. If you could share any observations related to charter integrating Disney plus sentiments pay television programming tiers is there anything you can say about percentage of customers actually using it or engagement levels relative to the average Disney plus subscriber.
Hugh F. Johnston: Suffice to say that the opportunity that we see on a percentage basis probably isn't all that dramatically different from what our competitor has found in terms of their subscriber base. In terms of getting at it, there are a couple of actions that we've taken in order to do that. Number one, we have made some changes to the user language that we have in the U.S., Canada, and certain markets so that we'll actually have the opportunity to act on the paid sharing opportunity. Number two, the accounts that we think are doing unpaid sharing right now will get communication this summer, and we'll give them opportunities to allow their borrowers to start new subscriptions. And then later this year, we'll also have account holders who want to allow further individuals to access their account from outside the household. They'll be able to access the account, but they'll be able to do so for an additional fee.
Bryan Kraft: And maybe lastly, do you think that this is a model that you'd like to replicate the other pay TV distributors over time as your agreements come up for renewal.
Speaker Change: Thanks, Brian it's really early they didn't start introducing this to their subscribers really until January and they didn't roll it all out right away and so we're seeing some.
Speaker Change: Stats on this that are somewhat encouraging, but I want to be careful.
Speaker Change: Because it's early we're not sure whether those trends will continue or not I do think that this kind of arrangement is one that we'll likely see with other multichannel distributors. It seemed like it was a win win for both of us.
Speaker Change: Important to us obviously, because it gives us access to more of their customers and important to them in terms of bundling. This service with their multichannel customers. So I think it's.
Hugh F. Johnston: So we've got a number of tactical actions to take in order to take advantage of what we think is a pretty good-sized opportunity in front of us, and it's one of the things that gives us confidence in our subscriber growth numbers. Thank you. Operator, next question, please.
Speaker Change: Again, I think youll see more in this direction, but too early yet we may have more to say about this next quarter when we know a lot more.
Speaker Change: Thank you.
Speaker Change: Operator, we have time for one more question.
Speaker Change: And our next our final question today comes from Michael Morris with Guggenheim. Please go ahead.
Operator: Thank you. And our next question comes from Steven Cahall with Wells Fargo. Please go ahead.
Michael C. Morris: Thank you good afternoon, one follow up on the sports JV.
Steven Cahall: Thank you. So, Bob, you mentioned a lot of content in your remarks. It seems like the operations are really starting to hum again, you know, but I think the lifeblood of the company is always going to be the studio output. It drives so much culture.
Michael C. Morris: First and Thats, how did you comfortable that the availability of the service won't drive accelerated cord cutting.
Michael C. Morris: <unk> become an economic drag on your business and the business more broadly.
Robert A. Iger: I think that's an area you've said that you've been spending a lot of time on. Do you feel like the content is also now turning the corner, like you've seen in the operations? And if so, when do you think we might see some of the results of that renewed focus on the studio output? And then, Hugh, I think an inevitable question with the buyback announcement is what you expect. You might end up ultimately paying for Hulu. Just wondering if you have any sense on the timing of that outcome or situation.
Michael C. Morris: How do you expect this to impact your renewal discussions with with your distribution partners. So that's my first and then my second Bob.
Robert A. Iger: <unk> seen several iterations of the video game strategy. During your tender 10 year can you talk a little bit more about why this investment in epic games is the right move for you here and what a product might look like and when that may come to market. Thank you.
Speaker Change: Sure Let me take the second part of the question first yes Youre right.
Speaker Change: We've tried our hand at video games, and a number of different directions and actually the one that ended up being the most successful for US was the licensed and in fact, we have license I think 9 billion dollar franchises, including the Spider Man franchise, which is the most successful videogame last year.
Robert A. Iger: And related to that, I think the exceed $7.5 billion in savings is a bit new. You know, I'd be curious just where you found those extra buckets of cost savings. Thank you. Steven, I feel great about where we are with the studio. Let's not lose sight of the fact that in the last year, the studio had some real success. Not to suggest that we didn't have some of the films that were not successful that we were really disappointed in, but we also had some great success, too, with the Guardian sequel and Avatar at the end of calendar 22 but part of fiscal 23. One of the things that I've been saying before is that volume sometimes can be detrimental to quality, and in our zeal to greatly increase volume, partially tied to wanting to chase more global subscribers for our streaming platform, some of our studios lost a little focus.
Speaker Change: After I came back I sat down with Josh Tomorrow, who runs our experiences business and his executive who actually manages games Sean shopped.
Speaker Change: And one of the things. They showed me actually the first thing they showed me where demographic trends and when I saw Gen Z and Gen Alpha and even millennials and I saw the amount of time they were spending in terms of their total media screen time.
Speaker Change: Video games it was stunning to me equal to what they spend on TV and movies and the conclusion I reached was we have to be there and we have to be there as soon as we possibly can in a very compelling way we knew through our relationship with fortnite that there was already success when some of our characters and franchise where express.
Robert A. Iger: So the first step that we've taken is that we've reduced volume. We've reduced output, particularly at Marvel. When you fix or when you address these issues in movies, you do three things. You get aggressive at making sure the films you're making can be even better. Sometimes you kill projects you don't believe in.
Showed up in Fortnite.
And we knew Tim Sweeney at epic because we are involved he was involved in our accelerated program I think in 2017 and so.
Speaker Change: I met with Tim and.
Robert A. Iger: Of course, you put new things in the pipeline that you do believe in and that you have much more confidence in, and we're doing all of that. But I've also observed over the years that managing creativity is sometimes best done with great partnerships. And I have established great partnerships with the people at our company that really manage your creativity, Alan Bergman at the studio, Dana Walden on the television side, and Jimmy Pataro at ESPN. And the partnership that Alan and I have is a strong one, and we believe that the time that I'm now devoting to this and the attention that the two of us are giving this business will not only bear fruit, but it's already starting to. We're very bullish about the films coming out. We mentioned Inside Out 2, and we talked about Deadpool, and the Planet of the Apes film. We feel good about that. Obviously, at the end of the calendar year, we've got Mufasa: A Prequel to The Lion King.
Speaker Change: Josh and his team started a discussion about what if we create a gigantic Disney world All Fortnite that could live next to fortnite and be completely interconnected with at a world where people could play games that we create could create their own games could watch you can imagine the creation.
Speaker Change: Of short form videos or May we may even use the platform to actually distribute some of our content also that people that could interact with one another and ultimately some form of shopping as well in other forms of creation, obviously there'll be some opportunities to buy digital goods, but maybe even at some point.
Speaker Change: Physical goods and I, just think that given the demographic trends and given the success of fortnite and by the way they are experiencing.
Speaker Change: Really a great year of both customer satisfaction and growth as they return to some of their routes. The numbers of fortnite have been really compelling and we just think this is just as we take our IP from our movies and our TV and have them expressed in our parks. This is a great way to do it in games and for US It's a way to have.
Robert A. Iger: We are very excited about the addition of Moana, which was the number one streamed movie of all streamers in the U.S. in 23 and has had over a billion hours of consumption on Disney+, and that's now going to be released in November. And then I mentioned what we're doing after that. I'd say we're leaning a little bit more into sequels and franchises, some that we feel great about, like Toy Story, for instance, obviously Star Wars, and Avatar, we've talked about. Marvel is starting to focus on some of its stronger franchises going forward, but I'll leave it at that.
Speaker Change: Skin in the game with them with the investment of $1 five strengthen our partnership because we have skin in the game, but also build a world where we're actually not creating too much risk for the company. So as we see it. This is the best of all worlds in many respects from a business venture perspective, and certainly great for consumers who loved it.
Speaker Change: <unk> with our characters already and videogame format, so I'm actually actually really thrilled about it and the second.
Robert A. Iger: And I think given the environment and given what it takes to get people out of their homes to see a film, doing that, leaning on franchises that are familiar is actually a smart thing. So we've got work to do still. We're not resting on our laurels or sitting on our hands.
Speaker Change: The first part of your first question accelerating cord cutting understand that we're going to get paid in this new joint venture for our channels at a level that is commensurate with the level that we get paid for those channels and the multichannel ecosystem.
Speaker Change: No.
Speaker Change: Consumer moves out of that and then into this than what we get paid for our certainly this channels that are in it is equal to where we get paid there. We have some other channels that are not part of this new bundle, but frankly, if you look at our company and you look at what we've done with FX on Hulu with a Disney channel on Disney.
Robert A. Iger: We're working hard at it, but I feel quite good about the trajectory. Steve, from my perspective, regarding Hulu, timing on that, we've got a pretty clearly defined process. That process is going to take a little bit of time based on the work that needs to go into valuing the business. I would expect before we get to the end of the year that we should have this figured out and closed.
Speaker Change: Plus with National geographic on Disney plus.
Speaker Change: We're really very well positioned to withstand this.
Hugh F. Johnston: Regarding cost savings, it's pretty well spread out across the board. One of the things you tend to find is when a company goes on a cost effort, once you start to build momentum on that, people tend to find additional opportunities. That's what gives us the confidence around the numbers to at least meet, if not exceed them. Not in any specific area.
Speaker Change: Basically the continued challenges that the multichannel ecosystem will have.
Speaker Change: Wow.
Speaker Change: There might be some de minimis economic impact on us with more cord cutting for those channels were backstopped and all of those channels with the content that exists or that we ultimately put on Hulu and Disney plus so it's for us, it's very low risk and actually as I talked earlier.
Hugh F. Johnston: It's content side as well as SG&A side. I think we just have momentum on managing our expenses more tightly, which is great news, I think, for investors. Thank you. Operator, next question, please. And our next question today comes from Bryan Kraft with Deutsche Bank. Please go ahead. Oh, hi. Good afternoon.
Speaker Change: <unk> potentially quite accretive to us in terms of signing up sports fans that have never signed up for the bundle for that may not no longer wanted.
Speaker Change: Okay. Thanks for the question and I want to thank everyone for joining us today.
Speaker Change: Note that a reconciliation of non-GAAP measures that we referred to on this call.
Speaker Change: GAAP measure can be found on our Investor Relations website.
Speaker Change: Let me also remind you that certain statements on this call, including financial estimates or statements about our planned guidance or expectations and driver, including future revenues profitability DTC subscribers free cash flow adjusted EPS and capital allocation and other statements not historical in nature.
Bryan Kraft: Since there's so much discussion about bundling and distribution, I was wondering if you could share any observations related to Charter integrating Disney Plus into its pay TV programming tiers. Is there anything you could say about, you know, the percentage of customers actually using it or engagement levels relative to the average Disney Plus subscriber? And maybe lastly, do you think that this is a model that you'd like to replicate with other pay TV distributors over time as your agreements come up for renewal? Thanks. Thanks, Bryan. It's really early.
Speaker Change: May constitute forward looking statements under the securities.
Speaker Change: We make these statements on the basis of Rps.
Speaker Change: Regarding future events and business performance.
Speaker Change: And we do not undertake any obligation to update them.
Speaker Change: Okay.
Speaker Change: 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 variety of factors.
Robert A. Iger: They didn't start introducing this to their subscribers really until January, and they didn't roll it all out right away. And so we're seeing some stats on this that are somewhat encouraging, but I want to be careful that, you know, because it's early, we're not sure whether those trends will continue or not. I do think that this kind of arrangement is one that we'll likely see with other multi-channel distributors. It seemed like it was a win-win for both of us.
Speaker Change: These factors include among others economic or industry conditions competition and execution risk.
Speaker Change: Including in connection with our business plan potential strategic transaction and our content.
Speaker Change: Cost savings the market for advertising or future financial performance and legal and regulatory development.
Speaker Change: In particular.
Speaker Change: This is regarding BGC profitability subscriber level and are built on certain assumptions around subscriber additions based on interest rate context right Sharon.
Robert A. Iger: Important to us, obviously, because it gives us access to more of their customers, and important to them in terms of bundling this service with their multi-channel customers. So I think it's, again, I think you'll see more in this direction, but it's too early yet. We may have more to say about this next quarter when we know a lot more. Thank you. Operator, we have time for one more question.
Speaker Change: The financial impact of the Disney bought Alcan and pricing.
Speaker Change: The impact of bundling.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Technological advances in Tokyo.
Speaker Change: We continue to execute on.
Speaker Change: Our transformation, while preserving revenue and macroeconomic conditions, all of which Bob based on extensive internal analysis as well.
Operator: Thank you. And our next, final question today comes from Michael Morris with Guggenheim. Please go ahead.
Speaker Change: <unk> provide a layer of uncertainty.
Michael C. Morris: One follow-up question on the, uh, sports JV, and that's, how did you get comfortable that the availability of the service won't drive accelerated cord cutting and, you know, become an economic drag on your business and the business more broadly? And, you know, how do you expect this to impact your renewal discussions with your distribution partners? That's my first question.
Speaker Change: For more information about key risk factors. Please refer to our Investor Relations website and press release issued today and the.
Speaker Change: And 13 described in our Form 10-K Form 10-Q filing.
Speaker Change: Filings with Securities and Exchange Commission.
Speaker Change: Thank you for joining us and wish everyone a good bet.
Speaker Change: Thank you. This concludes today's conference call you May now disconnect your lines and have a wonderful day.
Robert A. Iger: And then my second question is, Bob, you've seen several iterations of the video game strategy during your tenure. Can you talk a little bit more about why this investment in Epic Games is the right move for you here and, and what a product might look like and, and when that may come to market? Thank you.
Robert A. Iger: Sure. Let me take the second part of the question first. Uh, yes, you're right.
Robert A. Iger: We've, uh, we tried our hand at video games in a number of different directions, and actually, the one that ended up being the most successful for us was the license. And in fact, we've licensed, I think, $9 billion in franchises, including the, uh, Spider-Man franchise, which was the most successful video game last year. Uh, after I came back, I sat down with Josh DeMauro, who runs our experiences business, and his executive, who actually manages games, Sean Shoptow. And one of the things they showed me, actually, the first thing they showed me were demographic trends. And when I saw Gen Z and Gen Alpha and even Millennials, and I saw the amount of time they were spending in terms of their total media screen time on video games, it was stunning to me, equal to what they spend on TV and movies.
Robert A. Iger: And the conclusion I reached was we have to be there, and we have to be there as soon as we possibly can in a very compelling way. We knew through our relationship with Fortnite that there was already success when some of our characters and franchises were expressed or showed up in Fortnite. And we knew Tim Sweeney at Epic because we were involved in, and he was involved in, our Accelerator program, I think in 2017.
Speaker Change: [music].
Robert A. Iger: And so I met with Tim and Josh, and his team started a discussion about what if we created a gigantic Disney world a la Fortnite that could live next to Fortnite and be completely interconnected with it. A world where people could play games that we create, could create their own games, could watch, you can imagine the creation of short-form videos, or we may even use the platform to actually distribute some of our content. Also, people could interact with one another and ultimately do some form of shopping as well as other forms of creation.
Robert A. Iger: Obviously, there'll be opportunities to buy digital goods but maybe even, at some point, physical goods. And I just think that given the demographic trends and given the success of Fortnite, and by the way, they're experiencing a really great era of both customer satisfaction and growth as they've returned to some of their roots. The numbers for Fortnite have been really compelling.
Robert A. Iger: And we just think this is, just as we take our IP from our movies and our television and have it expressed in our parks, this is a great way to do it in games. And for us, it's a way to have skin in the game with them with the investment of a billion dollars, strengthen a partnership because we have skin in the game, but also build a world where we're actually not creating too much risk for the company. So, as we see it, this is the best of both worlds in many respects from a business venture perspective and certainly great for consumers who love to interact with our characters already in the video game format. So I'm actually really thrilled about it.
Robert A. Iger: And the second or the first part of your first question, accelerating cord cutting, understand that we're going to get paid in this new joint venture for our channels at a level that's commensurate with the level that we get paid for those channels in the multi-channel ecosystem. And so if a consumer moves out of that and then into this, then what we get paid for are certainly these channels that are in it are equal to what we get paid there. We have some other channels that are not part of this new bundle. But frankly, if you look at our company and what we've done with FX on Hulu, with the Disney Channel on Disney+, with National Geographic on Disney+, we're really very well positioned to withstand the continued challenges that the multi-channel ecosystem will have. And while, you know, there might be some de minimis economic impact on us with more cord cutting for those channels, we're backstopped on all of those channels with the content that exists or that we ultimately put on Hulu and Disney+. So it's, you know, for us, it's a very low risk.
Robert A. Iger: And actually, as I talked earlier, potentially quite accretive to us in terms of signing up sports fans that have never signed up for the bundle or that might no longer want it. Okay, thanks for the question, and I want to thank everyone for joining us today. Note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our investor relations website. Let me also remind you that certain statements on this call, including financial estimates for statements about our plans, guidance, or expectations and drivers, including future revenues, profitability, DTC subscribers, free cash flow, adjusted EPS, and capital allocation, and other statements that are not historical in nature, may constitute forward-looking statements under the securities laws.
Robert A. Iger: 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. Foreseeable 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 risk, including connection with our business plan, potential strategic transactions, and our content, cost savings, the market for advertising, or future financial performance, and legal and regulatory developments. In particular, our expectations regarding DTC profitability, subscriber levels, and ARPU are built on certain assumptions around subscriber additions based on future strength of our content slate, certain expectations, the financial impact of the Disney Plus For more information about key risk factors, please refer to our investor relations website, the press release issued today, and the risks and uncertainties described in our Form 10-K, Form 10-Q, and other filings with the Securities and Exchange Commission.
Speaker Change: [music].
Operator: We want to thank you for joining us and wish everyone a good rest of the day. Thank you. This concludes today's conference call. You may now disconnect your lines and have a wonderful day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??