Q2 2024 The Walt Disney Co Earnings Call
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I would now like to turn the conference over to Alexia, well, Johnny Executive Vice President of Investor Relations. Please go ahead.
Alexia: Good morning, It's my pleasure to welcome everybody to the Walt Disney Company second quarter 2024 earnings call.
Alexia: Our press release was issued earlier this morning and is available on our website at Www Dot Disney Dot com forward slash investors.
Speaker Change: <unk> call is being webcast and a replay and transcript as well as the second quarter earnings presentation. We will 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.
Speaker Change: Following comments from Bob and he 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: Thank you Alexia and good morning, everyone.
Robert A. Iger: Drawing performance in Q2 demonstrates we are delivering on our strategic priorities while building for the future.
Bob: Overall this was another impressive quarter for us with adjusted earnings per share up 30% compared to prior year.
Robert A. Iger: And I'm pleased to say this outperformance raises our full year adjusted EPS growth target to 25%.
Robert A. Iger: Our results were driven in large part by our experiences segment and our streaming business, which achieved an important milestone with the entertainment portion of the streaming business achieving profitability in the quarter.
Robert A. Iger: This is a testament to the turnaround we set in motion last year and the outstanding leadership of Disney Entertainment Co Chairman, Alan Bergman and Dana Walden.
Robert A. Iger: Is particularly noteworthy when you consider we reported peak losses, only 18 months ago.
Robert A. Iger: We also remain on track to reach profitability in our combined streaming businesses in Q4, we.
Robert A. Iger: We've said all along our path to profitability will not be linear and while we are anticipating a softer third quarter due in large part to the seasonality of our India sports offerings, we fully expect streaming to be a growth driver for the company in the future and we have prioritized the steps necessary to.
Robert A. Iger: To achieve this.
Robert A. Iger: In March we successfully launched Hulu on Disney plus bringing extensive general entertainment content to the platform for bundle subscribers.
Robert A. Iger: And we are encouraged by the early results.
Robert A. Iger: And by the end of this calendar year, we will be adding an ESPN tile to Disney plus giving all U S subscribers access to select live games and studio programming within the Disney plus App.
Robert A. Iger: We see this as a first step to bring ESPN Disney plus viewers as we ready the launch of our enhanced Standalone ESPN streaming service in the fall of 2025.
Robert A. Iger: The key to our success in streaming and what consistently brings consumers back for more as the array of exceptional content, we produce that captivates audiences of all ages and backgrounds.
Robert A. Iger: Looking at our film Studios, we have a number of highly anticipated theatrical releases, arriving over the next few months, including Kingdom of the planet of the Apes, which opens this friday as well as Pixar inside out to <unk>.
Robert A. Iger: Marvel's Deadpool and Wolverine and 20th century Studios alien Romulus, which are all slated for this summer.
Robert A. Iger: Later this year, we're looking forward to moana too and move faster the Lion King and in 2025, our slate remains just as robust with Captain America Brave New World Fantastic four.
Robert A. Iger: So zootopia too and avatar three.
Robert A. Iger: Our series also continue to resonate with audiences and critics alike.
Robert A. Iger: FX is shogun has proven to be a global hit with success on both linear and streaming.
Robert A. Iger: It's tracking as FX is most watched show ever on our streaming platforms and it's driving the second largest number of sign ups to our streaming services since 2022 behind only black Panther will kind of forever.
Robert A. Iger: This is a great example of how we are successfully reaching wider audiences with our combined linear and streaming ecosystem.
Robert A. Iger: In Q2 series that aired on linear networks accounted for 17 of the top 20, most viewed series on our streaming platforms with almost 3 billion hours of consumption.
Robert A. Iger: Our linear channels are deeply embedded in our direct to consumer strategy as they continued to deliver high quality content that reaches demographics not captured on streaming alone.
Robert A. Iger: Allowing us to broaden our audiences and leverage our unmatched content engine across an expansive base.
Robert A. Iger: Turning to ESPN sports continues to stand out when it comes to convening large audiences with recent big ratings wins across a variety of sports.
Robert A. Iger: <unk> had a fantastic April in terms of total day viewership the highest April since 2012 for primetime viewership. It was espn's highest April on record.
Robert A. Iger: The NCAA women's final four in Cleveland was the most viewed on record in the championship between Iowa, and South Carolina was Espn's, most viewed college basketball game ever mens or womens.
Robert A. Iger: We also saw record breaking ratings for the WNBA draft.
Robert A. Iger: Monday night football had its most watched season since 2000 and the NFL postseason also broke viewership records.
Robert A. Iger: The divisional playoff game between the Houston Texans, and Baltimore Ravens was ESPN, most watched NFL game ever with $32 4 million viewers.
Robert A. Iger: Looking at our experiences business, which remained at impressive financial driver in the quarter were focused on turbocharging growth with a number of long term strategic investments.
Robert A. Iger: That includes our Disneyland forward initiative, the first step in our expansion plans at Disneyland resort, which received unanimous preliminary approval by the Anaheim City Council last months.
Robert A. Iger: This was a significant milestone and the final vote is expected to take place this evening.
Robert A. Iger: We're incredibly excited for the many potential new stories, our guests could experience at what's original theme park, including the much anticipated opportunity to bring avatar to Disneyland.
Robert A. Iger: When you consider all of our businesses as a whole from entertainment to sports to experiences. It's clear that no. One has with Disney has the turnaround and growth initiatives. We set in motion last year have continued to yield positive results and we are executing against our ambitious strategic priorities with both.
Robert A. Iger: Speed and determination.
Robert A. Iger: To walk you through more of our results from the quarter I will now turn things over to Hugh.
Hugh F. Johnston: Thanks, Bob.
Hugh F. Johnston: Diluted earnings per share excluding certain items for the second fiscal quarter were $1 21, and reflect the second quarter in a row of strong double digit percentage year over year earnings growth.
Hugh F. Johnston: We also met or exceeded all of our financial guidance for the quarter.
Hugh F. Johnston: And as Bob mentioned, we are now targeting adjusted EPS growth up 25% for the full year.
Hugh F. Johnston: At our entertainment segment second quarter operating income increased by over 70% versus prior year driven by direct to consumer.
Hugh F. Johnston: Entertainment DTC revenue increased 2% sequentially and 13% year over year and generated operating income of $47 million. These results exceeded our guidance primarily due to expense savings.
Hugh F. Johnston: <unk> Disney plus subscribers increased by $6 3 million in the quarter, reflecting nearly 8 million additions domestically driven by charter entitlements and a slight loss internationally from the impacts of wholesale deal changes and price increases.
Hugh F. Johnston: Disney plus <unk> increased sequentially by 6% or 44.
Hugh F. Johnston: Reflecting price increases for the domestic premium tier as well as international <unk> growth, partially offset by lower AD supported <unk> domestically driven by dilution from charter entitlements.
Speaker Change: And the recent charter deal also drove Disney plus add to your subscriber growth in the quarter. We ended Q2 with $22 5 million add to your subscribers globally.
Speaker Change: We are pleased with the progress we're making in streaming although as we said before the path to long term profitability is not a linear one.
Speaker Change: On that note we are forecasting a loss for entertainment DTC in the third quarter. The vast majority of which is due to Disney plus Hot stars ICC cricket rights.
Speaker Change: We also do not expect to see core subscriber growth at Disney plus in the third quarter, but anticipate sub growth will return in Q4.
Speaker Change: As Bob mentioned, we continue to expect our combined streaming businesses to be profitable in the fourth quarter and expect further improvements in profitability in fiscal 2025.
Speaker Change: At entertainment linear networks.
Speaker Change: Decrease in operating income versus the prior year was primarily driven by lower affiliate and advertising revenue domestically and lower affiliate revenue internationally.
Speaker Change: And that content sales licensing and other lower Q2 results versus the prior year reflect the absence of significant theatrical releases in the quarter.
Speaker Change: For Q3, we expect this business to generate modestly positive operating income an improvement over the prior quarter and prior year.
Speaker Change: Moving to sports.
Speaker Change: Second quarter operating income decreased slightly versus the prior year, driven primarily by a decrease at ESPN offset by improved results at Star India Sports.
Speaker Change: As expected at ESPN lower results at the domestic business reflect higher programming and production costs from the timing of an additional college football playoff game in the quarter versus the prior year, which were only partially offset by higher ad revenue.
Speaker Change: Domestic affiliate revenue also decreased in the quarter.
Speaker Change: ESPN domestic AD sales increased by more than 20% versus the prior year or high single digits. When adjusted for the college football playoff timing shift of an additional game as well as a new NFL divisional playoff game in Q2 of this year.
Speaker Change: Q3 to date, we are seeing healthy demand driven by the NBA playoffs, and domestic ESPN cash AD sales are pacing up.
Speaker Change: At Star higher results in Q2 versus the prior year include the impact of a decrease in programming and production costs attributable to the non renewal of BCCI cricket rights.
Speaker Change: Looking ahead note that we are currently expecting to incur linear ICC rights expense at Star India in Q3.
Speaker Change: That experiences second quarter revenue grew 10% operating income grew 12% and segment margins expanded by 60 basis points versus the prior year.
Speaker Change: Parks and experiences Oi increased by 13% year over year.
Speaker Change: And consumer products or <unk> increased by 7%.
Speaker Change: Strong international Parks growth was driven by Hong Kong Disneyland resort, while Walt Disney World and the cruise business both contributed to domestic growth.
Speaker Change: At Disneyland despite growing attendance and per capita spend results declined year over year due to cost inflation, including from higher labor expenses.
Speaker Change: We continue to expect robust operating income growth that experiences for the full year. However, third quarter Oi is expected to come in roughly comparable to the prior year.
Speaker Change: Several non comparable or timing related items are expected to adversely impact Q3 results, including timing of media and tech expenses non comparable items in the prior year of consumer products and the timing of Easter.
Speaker Change: Beyond these comparability related headwinds for the third quarter's results will be impacted by three additional factors higher wage expenses.
Speaker Change: Preopening expenses related to the Disney Treasurer, and adventure cruise ships as well as Disney cruise line's New island look out key.
Speaker Change: And some normalization of post COVID-19 demand.
Speaker Change: As it relates to demand while consumers continue to travel in record numbers and we are still seeing healthy demand. We are seeing some evidence of a global moderation from peak post COVID-19 travel.
Speaker Change: While pressures from wages preopening costs and demand impacts are expected to persist in Q4, we do expect year over year air experiences operating income growth to rebound significantly in the fourth quarter due to fewer comparability or timing factors.
Speaker Change: On an enterprise level, we continue to make good progress on our cost efficiency initiatives and remain positioned to exceed our seven 5 billion annualized target.
Speaker Change: We still expect to generate over $8 billion in free cash flow this fiscal year and the shareholder return goals. We've previously spoken about are also still very much on track.
Speaker Change: We repurchased $1 billion of stock in the second quarter, we continue to position the company for long term growth and profitability and are making tangible progress on generating compounding earnings and free cash flow growth, which will enable us to continue returning capital to shareholders.
Speaker Change: I'll now hand, the call back to Alexia for Q&A.
Alexia: Thank 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 for any analysts as possible today and with that operator, we're ready for the first question.
Alexia: Thank you and as a reminder to ask a question. Please press Star then one to remove yourself from the queue. Please press Star then two.
Alexia: Today's first question comes from Steven Cahall with Wells Fargo. Please go ahead.
Steven Lee Cahall: Thank you.
Steven Lee Cahall: First thanks for that detail on parks and experiences and what Youre expecting the third quarter I just wanted to dig into some of those demand comments a little more so.
Steven Lee Cahall: So as you start to lap some of the post Covid rebound, what's your expectation for attendance may be at the domestic level and at the global level as you start to exit fiscal 'twenty foreign into 25, do you think things will continue to be stable or any of those softening trends.
Steven Lee Cahall: And that you expect attendance have any.
Steven Lee Cahall: Kind of year on year declines.
Steven Lee Cahall: And then on the DTC side of things.
Steven Lee Cahall: You've talked about a double digit operating margin as the aspiration I was wondering if you could just give us any timing as to when we can expect those types of margins and maybe you could speak to the underlying performance of DTC, Excluding hot star since I think youre going to be consolidating that next year. Thank you.
Speaker Change: Great. Good morning, Steve happy to weigh in on both of those first in terms of attendance.
Speaker Change: What we're basically communicating is relative to that to the post COVID-19 highest things are tending to normalize.
Speaker Change: <unk> business that 10% growth in the quarter and obviously, that's an extremely high revenue number that said, we still see in the bookings that we look ahead towards.
Speaker Change: Indicate healthy growth in the business. So we still certainly feel good about the opportunities for continued strong growth.
Speaker Change: In addition to that just to comment a bit more on the on the timing.
Speaker Change: As I mentioned on the on the intro, we do have some onetime expenses occurring in Q3, if we were to back out one timers. Both for Q3 and Q4, we expect Oi for the quarter to be in the mid to high single digit range for Q3.
Speaker Change: And to be double digit for Q4 so.
Speaker Change: Certainly feel like the parks business is still doing very very well, obviously, we've got the.
Speaker Change: The best in the business in terms of product and people still have a strong desire to basically go on vacation and come to see us.
Speaker Change: With regard to DTC margins.
Speaker Change: A couple of comments on that first our goal with this business is to make it a great growth business with healthy margins, we want both not one versus the other we've got a lot of levers that gives us strong reasons to believe that there is good growth in front of us whether it's the great programming, we have whether it's higher engagement through bundling and we.
Speaker Change: Got examples of that coming in Latin America, as well as adding the sports style, the ESPN tile to through our Disney plus offering.
Speaker Change: And obviously, we've already added Hulu and.
Speaker Change: In addition to that password sharing remains an opportunity. We're just getting started on reducing distribution costs are an opportunity and leveraging technology for direct to consumer marketing as well as recommendation engines, which helped both on the revenue and cost side and ultimately we'll get to building out the international business, even more strongly so from the perspective.
Speaker Change: Building the business it'll be a combination of both managing costs more tightly, but also growth, which will allow us to leverage the cost structure. We have right now and we feel very very positively about that specific timing I am not going to comment on for margins I don't like to get ahead of it.
Speaker Change: The next year until we get to the next year and in addition to that from a competitive perspective, I'd, rather not give my competitors the pathway on exactly how we're how and when we're going to achieve the margin goals. We're looking to achieve but overall business is in great shape and we feel good about the growth prospects.
Speaker Change: Operator, I think your question please.
Speaker Change: Thank you and our next question comes from Ben Swinburne with Morgan Stanley. Please go ahead.
Benjamin Daniel Swinburne: Thanks, Good morning.
Benjamin Daniel Swinburne: Two questions Bob on ESPN, Theres, obviously, a lot of focus on the NBA, you've got a lot going on in terms of new product launches.
Benjamin Daniel Swinburne: Rights packages coming up you sounded as bullish as ever on sort of pivoting. This business can you just talk about the next kind of 12 to 18 months and what we think what you're thinking as Ken It looks like a couple.
Benjamin Daniel Swinburne: Three years from now and specifically if you think you can grow this business from NOI point of view.
Speaker Change: While navigating what is clearly a still inflationary.
Speaker Change: Sports rights environment.
Speaker Change: And then I would love to just get your perspective on sort of the health of the IP at your studios I know we've talked about this a lot since you've come back into the CEO role.
Speaker Change: Specifically a lot of marvell content coming both on television and film over the next couple of years Thats an area investors are particularly focused on how are you feeling about the sort of pipeline on the Marvel side, specifically and whether you think.
Speaker Change: This IP is being reinvigorated to the to the extent you'd like it to be thanks a lot.
Speaker Change: Thanks, Ben first on ESPN and I think you have to start in terms of projecting the next 12 to 18 months and also considering where it might go from an OE perspective as it transitions more to a digital business you have to look at today and the ratings success of ESPN phenomenal menu of sports product or the rating.
Speaker Change: Of live sports in general across the business I mean, what you saw with obviously the womens NCAA basketball championships, but across the board I mentioned in my comments, what the April numbers look like highest April on record as a for instance in prime time at NV at ESPN.
Speaker Change: Sports continuing basically to shine in a world, where there's just considerably more choice.
Speaker Change: Alive matters. The other thing Thats really important is the engagement that live generates and I mentioned in my comments.
Speaker Change: Which we haven't really talked about much.
Speaker Change: I guess a lot of attention has been on the JV that we announced as well as on flagship which is taken ESPN direct at the end of 'twenty five but at the end of this year, we're going to put an ESPN tile on Disney plus which will have a modest amount of programming.
Speaker Change: But it's a start in terms of essentially.
Speaker Change: Conditioning, the audience, who are subscribers to Disney plus and Hulu. The fact that sports is going to be there and it also will help us in terms of overall engagement with our bundle as I look ahead, I think ESPN is going to make a pivot towards digital but without abandoning linear so it will remain on linear.
Speaker Change: We want to get ESPN and its different channels through our cable or satellite subscription that's fine or if they want to pivot smoothly because of that.
Speaker Change: There'll be many different access points to get the digital product to ESPN digital they can do so as part of a bundle with other sports services. They can do so directly from ESPN with ESPN app or they can do it as part of a bundle with our own services. So I feel very bullish about it you also have to look at the menu of sports rights that ESPN.
Speaker Change: Is bought in.
Speaker Change: You did a good job describing this on the air. This morning, one of his interviews first of all we've locked up long term deals with significant sports organizations that includes college football Championships and all the NCAA championship and the NFL, we're confident or optimistic we're going to end up with the NBA deal that will be long term and our best into.
Speaker Change: Just in the best interest of our subscribers and then you look at all of the studio product, there's really nothing like ESPN in the sports World and their hand is solid for the next decade. So I feel I'm very bullish smooth transition of digital multiple touch points for the consumer quality programming and sports in general live being.
Speaker Change: Very very attractive in terms of its programming IP at the studio I've talked a lot about this as you know.
Speaker Change: Feel great about the slate coming up including three of the big movies that we have with planet of the apes. This weekend followed by inside out too which is a great film and then Deadpool you mentioned Marvell Ben.
Speaker Change: Coming in July and then the end of the year. We've got we have al Elliott and the end of the summer and then we've got more audit two and move faster at the end of the year.
Speaker Change: We have been working hard with the studio to reduce output and focus more on quality.
Speaker Change: It's particularly true with Marvel I know you mentioned TV shows some of what is coming up is a vestige of basically a desire in the past increased volume we're slowly going to decreased volume and go to probably about two television series a year instead of what had become four and reduce our film output from maybe four years.
Speaker Change: Two two maximum three and we're working hard on what that path is we've got a couple of good films in 'twenty five.
Speaker Change: And then we're heading to more Avengers, which we're extremely excited about.
Speaker Change: Overall, I feel great about the slate.
Speaker Change: Something as you know that I've committed to spending more and more time on the team is I think one that I have tremendous confidence in and the IP that we're mining, including all of the sequels that we're doing.
Speaker Change: Is second to none.
Speaker Change: So I feel feel really good about what's coming up.
Speaker Change: Thank you.
Speaker Change: Operator next question please.
Speaker Change: Absolutely. Our next question comes from Jessica Reif Ehrlich with Bank of America Securities. Please go ahead.
Speaker Change: Thank you I will also have two different topics first on.
Speaker Change: Advertising direct to consumer could you give us your thoughts going into the upfront, particularly.
Speaker Change: With the integration of <unk>.
Speaker Change: The trade desk, and Google TV 360, <unk>, how does that impact.
Speaker Change: Advertising and.
Speaker Change: Any comment you can give us on password sharing like when will you implemented multitude of borrower.
Speaker Change: Borrowers or shares.
Speaker Change: And then last thing on DTC, but ESPN plus lost subs, which was a little surprising can you give us some color on what happened there and then turning to sports Bob you mentioned the confidence of getting the MBA for a long term contract.
Speaker Change: But I guess everybody is expecting that you will pay a lot more coupled with fewer games is there any comment that you can give us on your outlook for profitability with the new contract and will the inclusion of the MBA negotiations open the door to strategic investments.
Speaker Change: I think thats sure I'll pick her that thanks for the question Jessica I think that was two questions parts <unk> sorry.
Speaker Change: Captured it correctly.
Speaker Change: Okay.
Speaker Change: In terms of advertising generally speaking the advertising market is pretty pretty healthy right now as we head into the upfront.
Speaker Change: Certainly live and sports are playing out very well in addition to that we feel good about the offering we have particularly in terms of the premium offerings that we have both in sports as well as with the Disney plus offering.
Speaker Change: The challenge obviously in the advertising market right. Now is there is a lot more supply in the market largely as a result of one of our competitors entering the AD tier, but that said I think generally speaking we feel like.
Speaker Change: We're in a better place than we were a year ago, and we have healthy momentum across nearly all of the categories auto with maybe one exception in and maybe to some degree electronics as well, but by and large demand is out there and it's pretty high so as we lap our way out of the supply increase I think we're going to be in a good spot as we enter next year.
Speaker Change: Password sharing beginning next months in very select markets. We're starting to go after people who are sharing passwords.
Speaker Change: Properly.
Speaker Change: And that will rollout in earnest or across the globe in September we.
Speaker Change: We feel quite bullish about it obviously, we're heartened by the results that Netflix is delivered and their password sharing initiative.
Speaker Change: Believe that it will be one of the contributors to growth as Hugh noted going forward I think it's also important to note look Netflix is in many respects the gold standard when it comes to streaming.
Speaker Change: And what I mean, what I mean by that is if you look at programming, we stack up really well we have a great lineup in quality of programming across not just ESPN and Disney plus but also Hulu. What we're building is the technology that Netflix has had in place and has been building well for well over a decade to improve the business.
Speaker Change: From a bottomline perspective, and that starts with password sharing but it's all the things that you mentioned as well so I feel good about this being a necessary and very very productive next step in terms of rolling out the technology that we need to get to the double digit margins that he was talked about.
Speaker Change: Lastly in terms of the NBA im really not going to comment about profitability or about the cost of the package except to say as.
Speaker Change: As we've said before we continue to look at the NBA.
Speaker Change: Not only as a premium sports product, but as a sports.
Speaker Change: Product that has growth ahead of it obviously with great demographics, we feel really good about.
Speaker Change: The potential package that we will end up with in terms of it.
Speaker Change: Basically, enabling ESPN to continue to shine in the TV sports business.
Speaker Change: It would be.
Speaker Change: I won't say anything more about it at this point if and when there is an announcement, we will give more details.
Speaker Change: And then last on your question around the timing on ESPN plus subscriptions.
Speaker Change: Normal seasonality, that's one of the challenges when you look at things from one quarter. The next to the seasonality tends to get ignored but at the end of the college football season, we do typically see a decline so nothing out of the ordinary there.
Speaker Change: Thank you operator next question.
Speaker Change: And our next question comes from Robert Fishman with Moffett Nathan. Please go ahead.
Robert Fishman: Hi, Good morning, one for Bob and one for you if I can.
Robert Fishman: Back to sports just maybe more broadly as you think about which sports rights to invest and how important is securing global rights to drive international growth for ESPN or even Disney plus as part of your analysis to drive returns.
Robert Fishman: To combat the sports rights increases and then for you as a follow up to the theatrical slate that that Bob was speaking about before can you just help investors think about the Disney studio profit potential and success and maybe even relative to pre COVID-19 peak level. Thank you.
Speaker Change: I'll start on the sports question, we have selective Wright's international rights for sports.
Speaker Change: The sports properties that we've licensed largely for the United States. We also have an array of sports rights in Latin America. Many of them came with the acquisition of 20th century, Fox, we're being selective about adding international rights right, now where possible, where one where the opportunity exists where doing so but we're not.
Speaker Change: Investing heavily at this point.
Speaker Change: And growing.
Speaker Change: International rights, except again, where we can buy them along with the rights of our licensing for the United States, It's an opportunity for us to plant the seeds of more growth for ESPN outside the United States, but we're walking before we run in that regard and then Robert to answer your question about studio profitability as I've looked back.
Speaker Change: Profitability has got some cyclicality to it.
Speaker Change: And we certainly feel very good about the upcoming slate.
Speaker Change: That that business should get back to profitability and we certainly feel good about it being a healthy profitable business over time beyond that I don't want to get into quarterly guidance on a sub component of one of our segments. So it's just getting a little bit too low into the details.
Speaker Change: Thank you operator next question.
Speaker Change: And our next question comes from Kunal <unk> with Barclays. Please go ahead.
Kunal: Thank you.
Speaker Change: So.
Kunal: The bulk business, maybe Q above, but if you could talk about the framework, which anchors.
Kunal: Capex plan, it's obviously, a pretty significant plan over the next decade and the business has grown.
Speaker Change: <unk> mentioned in visits over a photo very long period of time how.
Speaker Change: How much upside do you see this trajectory over the investment.
Speaker Change: And then Bob from a succession planning perspective, you've obviously been highly engaged with the board on this.
Speaker Change: You talk about what your goal is in terms of the handle what do you hope to achieve in your tenure before the next CEO takes over thank you.
Speaker Change: Okay I'll take the first one.
Speaker Change: Regarding the investment in the parks.
Robert A. Iger: The financials of that business well, it's a 2025 plus margin business and has been for an extended period of time.
Robert A. Iger: It has terrific Lee high guest satisfaction scores, which create layers of advantage, which suggest we should be able to stain sustained high margins and high returns on investment.
Robert A. Iger: With the business with that profile.
Robert A. Iger: You invest in it we know there are lots of opportunities to continue to grow attendance, both domestically and internationally and the cruise business. Frankly is one that has an enormous number of opportunities for us over time and that is why we're leaning more heavily into that business. So.
Robert A. Iger: We're not investing capital obviously to achieve poor returns, we expect to get excellent returns out of the business.
Robert A. Iger: In particular in cruise as given the margin profile of the business.
Robert A. Iger: And the fact that it's got the highest guest satisfaction scores in the company.
Robert A. Iger: This leads us to conclude this is a business with a lot of runway left in it and that will deliver great returns to our shareholders.
Robert A. Iger: And regarding succession cannot as we've said before the board is heavily engaged in the process and has appointed a succession planning committee.
Robert A. Iger: That is meeting on a regular basis to not just discussed but also to manage the process.
Robert A. Iger: <unk> that they will choose the right person at the right time.
Robert A. Iger: And that to the extent that ICANN will participate in a smooth transition.
Speaker Change: Operator next question please.
Speaker Change: Thank you. Our next question comes from John Hodulik.
John Christopher Hodulik: With UBS. Please go ahead.
John Christopher Hodulik: Great. Thanks, Bobby engagement on Disney plus has been declining a bit based on the Nielsen Gage data, although I guess, it's ticked up a bit here recently at Hulu.
John Christopher Hodulik: The ESPN definitely makes sense, but can you talk about efforts to boost viewership on the platform, including the revamp of the technology and maybe the UI that you referenced last quarter.
John Christopher Hodulik: When should we expect to see these benefits are that technology rolled out anything you can tell us about engagement for users on the new combined Disney plus Hulu platform.
John Christopher Hodulik: That's one I guess with multiple parts and then following up on ESPN plus again lost subs again this quarter, what's the plan for that service once the flagship platform is launched next Paul Thanks.
John Christopher Hodulik: Yeah.
Paul: Yeah, John I'm happy to talk about engagement, a little bit on the platform as I mentioned earlier the <unk>.
Okay I'll take the first one.
Paul: Things that we believe drive engagement and still represents significant incremental opportunity for us as number one programming, having having terrific programming is obviously the leading factor in with what we've been introducing recently, whether it's <unk>, whether it's the bear over the next couple of years on the <unk> side and obviously the terrific movie slate that's right in front of us.
Regarding the investment in the parks.
The financials of that business well.
It's a 2025 plus margin business and has been for an extended period of time.
It has terrific Lee high guest satisfaction scores, which create layers of advantage, which suggest we should be able to sustain sustained high margins and high returns on investment.
John Christopher Hodulik: As we window it and into the streaming service, we think that's going to do.
With the business with that profile.
John Christopher Hodulik: Great things for engagement in addition to that.
You invest in it we know there are lots of opportunities to continue to grow attendance, both domestically and internationally and the cruise business. Frankly is one that has an enormous number of opportunities for us over time and that is why we're leaning more heavily into that business. So.
John Christopher Hodulik: Like recommendation engines obviously.
John Christopher Hodulik: Increase engagement because people are getting more of a sense of what it is that they want to watch based on the suggestions that we make.
John Christopher Hodulik: In addition to that.
John Christopher Hodulik: We do see bundling as an opportunity sports bundling, which is why we're putting the ESPN Taiwan in Latin America, we're combining all into the Disney plus App again, all this is geared towards driving engagement. So overall.
We're not investing capital obviously to achieve poor returns, we expect to get excellent returns out of the business.
In particular in cruise as given the margin profile of the business.
And the fact that it's got the highest guest satisfaction scores in the company.
John Christopher Hodulik: You can be confident we got laser focus on driving engagement, because we know it leads the subscriber satisfaction and it leads to lower churn over time.
This leads us to conclude this is a business with a lot of runway left in it and that will deliver great returns to our shareholders.
And regarding succession cannot as we've said before the board is heavily engaged in the process and has appointed a succession planning committee.
John Christopher Hodulik: Jon Your second question was about our strategy for ESPN class once they launch flagship was asked the question, yes, exactly I mean is that going to remain a separate service sort of alongside the.
That is meeting on a regular basis to not just discussed but also to manage the process.
John Christopher Hodulik: Sort of a full blown ESPN streaming service once that's launched next year.
They will choose the right person at the right time.
John Christopher Hodulik: The plan is if you if you buy the ESPN flagship then Youll get all ESPN plus programming in it if you do not want that then you can buy ESPN plus on its own. In addition, if you.
To the extent that I can participate in a smooth transition.
Speaker Change: Operator next question please.
Speaker Change: Thank you. Our next question comes from John Hodulik.
John Christopher Hodulik: Our current plan is that with the tile that we're putting on the combined Disney plus Hulu App.
John Christopher Hodulik: With UBS. Please go ahead.
John Christopher Hodulik: Great. Thanks, Bobby engaging on Disney plus has been declining a bit based on the Nielsen Gage data, although I guess, it's ticked up a bit here recently at Hulu.
John Christopher Hodulik: Pn tile youll.
John Christopher Hodulik: Youll be able if youre, an ESPN plus subscriber and youll be able to get ESPN plus through that tile.
John Christopher Hodulik: The ESPN definitely makes sense, but can you talk about efforts to boost viewership on the platform, including the revamp of the technology and maybe the UI that you referenced last quarter.
Speaker Change: Operator next question please.
John Christopher Hodulik: Thank you. Our next question comes from David Karnofsky JP Morgan. Please go ahead.
John Christopher Hodulik: When should we expect to see these benefits are that technology rolled out anything you can tell us about engagement for users on the new combined Disney plus Hulu platform.
Unknown Executive: Thank you for the questions maybe following up on the studio commentary from earlier as you noted your upcoming slate is a number of sequels and that strategy, where you've had a lot of success in the past, but as you look out over the medium term how do you think about the balance of leaning on established franchises versus investment in new IP and then separately when we look at your summer releases.
John Christopher Hodulik: That's one I guess with multiple partners and then following up on ESPN plus again lost subs again this quarter, what's the plan for that service once the flagship platform is launched next time. Thanks.
John Christopher Hodulik: Several films from 20th century, Fox IP. So I wanted to see what opportunity you think there is to bring more titles from the Fox library to the forefront. Thank you.
John Christopher Hodulik: Yeah.
Speaker Change: John I'm happy to talk about engagement, a little bit on the platform as I mentioned earlier the <unk>.
John Christopher Hodulik: Things that we believe drive engagement and still represents significant incremental opportunity for us as number one programming, having having terrific programming is obviously the leading factor in with what we've been introducing recently, whether it's show gun, whether it's the bear over the next couple of years on the <unk> side and obviously the direct movie slate that's right in front of us.
John Christopher Hodulik: We're going to balance sequels with original particularly in animation, we had gone through a period where.
John Christopher Hodulik: Our original films and animation, both Disney and Pixar were dominating we're now swinging back a bit to lean on sequels and so we've talked as you know about toy story and obviously.
John Christopher Hodulik: Inside out this summer.
John Christopher Hodulik: As we window it and into the streaming service, we think that's going to do.
John Christopher Hodulik: That right now given the competition in the overall movie marketplace that actually Theres a lot of value in the sequels, obviously because there.
John Christopher Hodulik: Great things for engagement in addition to that.
John Christopher Hodulik: Things like recommendation engines obviously.
John Christopher Hodulik: They are known and it takes less in terms of marketing.
John Christopher Hodulik: Increase engagement because people are getting more of a sense of what it is that they want to watch based on the suggestions that we make.
John Christopher Hodulik: In terms of Marvel's specifically.
John Christopher Hodulik: It implies there too we actually have both Thunderbolt as a for instance is coming up in 2025 as an original and then of course, we mentioned Deadpool.
John Christopher Hodulik: In addition to that.
John Christopher Hodulik: We do see bundling as an opportunity sports bundling, which is why we're putting the ESPN Taiwan in Latin America, we're combining all into the Disney plus at again all of this is geared towards driving engagement. So overall.
John Christopher Hodulik: A dead pool this summer, which is a sequel and talked about Avengers and Captain America is coming out in 2025, it'll be it'll just be a balance which we think is right in terms of the 20th century Fox.
John Christopher Hodulik: You can be confident we've got laser focus on driving engagement because we know it leads the subscriber satisfaction and it leads to lower churn over time.
John Christopher Hodulik: We continue to look at the library to see what can be mined I mentioned alien earlier, we've talked about avatar, three which is coming obviously planet of the apes, where there might be more opportunity pending the success of the film to do more.
John Christopher Hodulik: Jon Your second question was about our strategy for ESPN class once they launch flagship for that question.
Jon: Yes, exactly I mean is that going to remain.
Jon: But service sort of alongside the sort.
John Christopher Hodulik: Don't think.
John Christopher Hodulik: Necessarily lean into.
Jon: For a full blown ESPN streaming service <unk> launch next year.
John Christopher Hodulik: The library, but we'll continue to look opportunistically at it.
Jon: The plan is if you if you buy the ESPN flagship and Youll get all ESPN plus programming in it if you do not want that then you could buy ESPN plus on its own addition, if you.
Speaker Change: Thank you operator next question.
Speaker Change: Next question comes from Michael Morris Guggenheim. Please go ahead.
Speaker Change: Thank you. Good morning, two questions first can you expand or give us an update on the charter partnership you mentioned a couple of times I know it was the first quarter of that kind of new relationship.
Jon: Our current plan is that with the tile that we're putting on the combined Disney plus Hulu App.
Jon: SPN tile youll.
Jon: Youll be able if youre, an ESPN plus subscribers and you'll be able to get ESPN plus through that tile.
Speaker Change: Or at least new new structure. So the questions are.
Speaker Change: How did that subscriber base performed from an engagement perspective, how is churn did.
Speaker Change: Operator next question.
Jon: Thank you. Our next question comes from David Karnofsky JP Morgan. Please go ahead.
Speaker Change: Did the quarter reflect the full impact at this point from a financial perspective and is this a template.
David Karnofsky: Thank you for the question maybe following up on the studio commentary from earlier as you noted your upcoming slate is a number of sequels and that strategy, where you've had a lot of success in the past, but as you look out over the medium term how do you think about the balance of leaning on established franchises versus investment in new IP and then separately when we look at your summer releases.
Speaker Change: You do expect to use more frequently going forward.
Speaker Change: So that's the first topic and then second I wanted to ask about licensing content.
Speaker Change: And what your view is or your updated view of licensing your content off platform.
Speaker Change: But what the growth opportunity is there and whether you kind of look at the so called Netflix effect is something you could benefit from by licensing off platform or whether you want to create that effect yourselves on your own platform and keep content in house. Thank you.
David Karnofsky: Several films from 20th century, Fox IP. So wanted to see what opportunity do you think there is to bring more titles from the Fox library to the forefront. Thank you.
David Karnofsky: We're going to balance sequels with original particularly in animation, we had gone through a period where.
Speaker Change: Yeah I'll take the first question on this.
David Karnofsky: Our original films and animation, both Disney and Pixar were dominating we're now swinging back a bit to lean on sequels and so we've talked as you know about toy story and obviously.
Speaker Change: It's very early days, obviously in terms of the charter deal during the quarter was only in place for a couple of months that said.
Speaker Change: We're happy with it so far we obviously have gotten.
David Karnofsky: Inside out this summer I, just think that right now given the competition in the overall movie marketplace that actually there is a lot of value in the sequels, obviously because there.
Speaker Change: Added subscribers. In addition to that cannibalization has not been very high and overall the engagement has been good so as for it being a template for the future I don't think I would go to that level. Each of these deals in many ways has to be architected to the specific needs of the partner as well as our needs.
David Karnofsky: They are known and it takes less in terms of marketing.
David Karnofsky: In terms of Marvel specifically.
David Karnofsky: It implies there too we actually have both Thunderbolt as a for instance is coming up in 2025 as an original and then of course, we mentioned Deadpool.
Speaker Change: I don't think I would think of it as a template for the future, but it's been a successful deal for us and for charter. So we feel good about it.
David Karnofsky: A dead pool this summer, which is a sequel and talked about Avengers and Captain America is coming out in 2025, it'll be it'll just be a balance which we think is right in terms of the 20th century Fox.
Speaker Change: We're already doing some licensing with Netflix.
Speaker Change: And we're looking selectively at other possibilities.
Speaker Change: I don't want to declare that it's a direction will go more aggressively or not but we certainly are taking a look at it and being expensive and are thinking about it. We had previously thought that exclusivity, meaning our own product on our own platforms had huge value. It does definitely does have some value, but as you noted we're also watching as some.
David Karnofsky: We continue to look at the library to see what can be mined I mentioned earlier and earlier, we talked about avatar, three which is coming obviously planet of the apes, where there might be more opportunity pending the success of the film to do more.
Speaker Change: Studios of license content to third party streamers and that creates more traction more awareness and effect increases not only the value of the content from a financial perspective, but just in terms of traction. So we're going to we're looking at it with an open mind.
David Karnofsky: Don't think will necessarily lean into that.
Our library, but we'll continue to look opportunistically at it.
Speaker Change: Thank you operator next question.
Speaker Change: Our next question comes from Michael Morris Guggenheim. Please go ahead.
Speaker Change: Thank you. Good morning, two questions first can you expand or give us an update on the charter partnership you mentioned a couple of times I know it was the first quarter of that.
Speaker Change: But I don't think you should expect that we will do a significant amount of it.
Speaker Change: Okay. Thanks for the questions 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 the most comparable GAAP measures can be found on our Investor Relations website.
And a new relationship.
Or at least new new structure. So the questions are.
How did that subscriber base perform from an engagement perspective, how is churn.
Speaker Change: Let me also remind you that certain statements on this call, including financial estimates or statements about our plans and guidance or expectations in drivers, including future revenues profitability DTC subscribers free cash flow adjusted EPS and capital allocation and other statements that are not historical.
Did the quarter reflect the full impact at this point from a financial perspective and is this a template that you do expect to use more frequently going forward.
So that's the first topic and then second I wanted to ask about licensing content.
And what your view is or your updated view of licensing your content off platform.
Speaker Change: In nature may constitute as forward looking statements under the securities laws.
But you know what the growth opportunity is there and whether you kind of look at the so called Netflix effect is something you could benefit from by licensing off platform or whether you want to create that effect yourselves on your own platform and keep content in house. Thank you.
Speaker Change: 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.
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 a number of factors.
Speaker Change: Yeah I'll take the first question on this.
It's very early days, obviously in terms of the charter deal during the quarter was only in place for a couple of months that said.
Speaker Change: These factors include among others economic or industry conditions competition and execution.
Hugh: We're happy with it so far we obviously have gotten.
Hugh: Added subscribers and in addition to that cannibalization has not been very high and overall the engagement has been good so as for it being a template for the future I don't think I would go to that level. Each of these deals in many ways has to be architected to the specific needs of the partner as well as our needs.
Speaker Change: Including in connection with our business plan potential strategic transactions, and our content cost savings and market for advertising or future financial performance.
Speaker Change: Legal and regulatory developments.
Speaker Change: In particular, our expectations regarding DTC profitability subscriber levels in <unk> are built on certain assumptions around subscriber addition, based on the future strength of our content slate churn expectation the financial impact of Disney plus is that tier pricing decision.
I don't think I would think of it as a template for the future, but it's been a successful deal for us and for charter. So we feel good about it.
We're already doing some licensing with Netflix.
And we're looking selectively at other possibilities.
Speaker Change: Bundling and availability of Hulu Disney plus.
I don't want to declare that it's the direction, we will go more aggressively or not but we certainly are taking a look at it and being expensive and are thinking about it. We had previously thought that exclusivity, meaning our own product on our own platforms had huge value. It definitely does have some value, but as you noted we're also watching as some.
Speaker Change: <unk> com dancing and paid sharing efforts our ability to continue to rationalize cost, while preserving revenue and macroeconomic conditions all of which Bob based on extensive internal analysis as well as recent <unk> provide a layer of uncertainty in our outlook.
Studios of license content to third party streamers and that creates more traction more awareness.
Speaker Change: For more information about key risk factors. Please refer to our Investor Relations website. The press release issued today the risks and uncertainties described in our Form 10-K Form 10-Q, and other filings with the Securities and Exchange Commission.
Fact increases not only the value of the content from a financial perspective, but just in terms of traction. So we're going to we're looking at it with an open mind.
Speaker Change: We want to thank you for joining us and wish everyone. A good rest of the day.
Speaker Change: But I don't think you should expect that we'll do a significant amount of it.
Speaker Change: The conference has now concluded we thank you all for participating in today's call. You may now disconnect your lines and have a wonderful day.
Speaker Change: Okay. Thanks for the questions and I want to thank everyone for joining us today notes and a reconciliation of non-GAAP measures that were referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website.
Let me also remind you that certain statements on this call, including financial estimates or statements about our planned guidance or expectations in drivers, including future Matthews profitability DTC subscribers free cash flow adjusted EPS and capital allocation and other statements that are not historical.
Non nature may cause.
<unk> in its forward looking statements under the securities laws.
We make these statements on the basis of our views and assumptions regarding future events and business performance at the time, we make them and we do not undertake any obligation to update these statements.
Forward looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a number of factors.
These factors include among others economic or industry conditions competition and execution risks.
Including in connection with our business plan potential strategic transactions, and our content cost savings and market for advertising or future financial performance and legal and regulatory developments.
In particular, our expectations regarding DTC profitability subscriber level and <unk> are built on certain assumptions around subscriber addition, based on the future strength of our content slate churn expectation the financial impact of Disney plus is that tier pricing decisions.
Bundling and availability of Hulu on Disney plus technological advances and paint sharing efforts our ability to continue to rationalize costs, while preserving revenue and macroeconomic conditions all of which Bob based on extensive internal analysis as well as recent experience provide a layer of.
Uncertainty in our outlook.
For more information about risk factors, please refer to our Investor Relations website.
Our press release issued today, the risks and uncertainties described in our Form 10-K Form 10-Q, and other filings with the Securities and Exchange Commission.
Speaker Change: We want to thank you for joining us and wish everyone. A good rest of the day.
Speaker Change: The conference has now concluded we thank you all for participating in today's call you may now.
Speaker Change: Now disconnect your lines and have a wonderful day.