If you want to read The Walt Disney Company’s third quarter and nine months earning report for 2018.
Bob Iger started the call by discussing the 21st Century Fox deal. Iger seemed enthusiastic about getting the assets in Disney’s intellectual property portfolio. Citing that the company has plans to bolster Fox brands like FX, National Geographic, and Fox Searchlight. Iger praised all three brands for their content creation. Even going as far to say National Geographic will be included in Disney’s Direct-to-Consumer service.
Iger hinted at with the Fox deal that Marvel will have more creative options for Disney’s streaming service. Which basically confirms the characters from Fantastic Four, Deadpool, and X-Men will be fair game. Even if the deal takes awhile to complete. Disney definitely has plans for expanding the Marvel universe.
Also like I speculated before Iger was hinting at multiple Direct-to-Consumer services. Maybe this is how they split between family friendly and adult? Or maybe it is a split between a Fox service and a Disney service?
Disney is definitely high on National Geographic. Already announcing they would be included in the Disney streaming service. Bob Iger continued by saying the brand has potential in the eco-tourism space. Let the National Geographic-Animal Kingdom rumors commence!
The call also confirmed that Disney is developing series based on Monsters Inc. and High School Musical. Along with a live-action Star Wars series and the return of the Star Wars animated series The Clone Wars. Disney’s live-action version of Lady and the Tramp is currently in the works. Disney’s streaming service is planned to launch in late 2019. The price will be cheaper to reflect the lower volume of content. “We are going to walk before we run.” said Disney CEO Bob Iger regarding the new streaming service and its terms of content.
Once Disney’s purchase of Fox is complete. They will own 60% of Hulu. Hulu may be where all the Fox brands go except for National Geographic. Disney has the potential to bundle Hulu, ESPN+, and “Disneyflix” into one subscription. Now that could be costly compare to Disney’s intention of having a streaming service at $4.99.
Bob Iger says Disney’s streaming service is the biggest priority for the company in 2019. Historical content from Lucasfilm and Marvel will be combated with Disney’s desire to make original content. Films released from 2019 and forward will appear on the service. Bob Iger discussed Disney’s impressive 2019 slate which includes Captain Marvel, Dumbo, Avengers 4, Aladdin, Toy Story 4, Artemis Fowl, The Lion King, Jungle Cruise, Frozen 2, and Star Wars: Episode IX.
Disney feels that they have enough to compete against stiff competition from Netflix, Amazon, and Apple. By looking at that slate my oh my. Not to mention their original content plan is already looking stellar.
Consumer Products and Interactive Media revenues decreased by 8%. The decrease in income from licensing activities was driven by lower revenue from products based on Cars and Spider-Man, partially offset by an increase from products based on Avengers.
On the Studio Entertainment side of things. Disney CFO Christine McCarthy announced on the call that Avengers: Infinity War is Marvel’s highest-grossing movie ever with $2.04 billion at the box office. Disney also expects Incredibles 2 to be the highest-grossing Pixar movie ever. Studio Entertainment revenue increased 20% to $2.9 billion in the third quarter. Bob Iger also reassured that Disney is still in support of the theater business despite diving into the world of streaming.
Parks & Resorts division increased 6% to $5.2 billion. The operating cost was increased 15% to $1.3 billion. Disney said the higher operating income comes from increases in average ticket prices, food, beverage, merchandise spending and average hotel room rates. The operating income at the international parks and resorts was due to growth at Shanghai Disney Resort and Hong Kong Disneyland Resort. Operating income at Shanghai Disney Resort was due to lower costs and attendance growth. Hong Kong Disneyland Resort’s operating income was primarily due to higher occupied room nights, average ticket prices, and attendance. Bob Iger briefly mentioned during one of his answers that Toy Story Land and Star Wars: Galaxy’s Edge will help park and resorts margins in 2019, and give the company more opportunities to make revenue.
Now moving on to the Cable Networks. BAMTech is now reported in the Cable Networks division. The loss at BAMTech reflects the higher content and marketing lost during the rollout for ESPN+. Freeform was on decline due to lower advertising revenue and high marketing cost. ESPN had a decrease in advertising revenue. Programming cost was also higher at ESPN due to the contractual increase in their NBA contract. Advertising revenue was also impacted by having one less NBA finals game.
UFC and Top Rank boxing will have a growing presence on ESPN+. Iger said that ESPN+ should be attractive for combat sport fans. Over 200+ college football games will be on the service this season. 70 games will be aired in the first three weeks of the season. Disney wasn’t ready to reveal the subscriber number for ESPN+. Iger did mention that the free to paid subscriber rate has been very strong.
Christine McCarthy discussed programs sales were driven by the higher sales of Designated Survivor (which ABC cancelled…), How to Get Away with Murder, and Grey’s Anatomy. The programming costs increase was driven by higher cost primetime programming, including the impact of American Idol and Roseanne.
Analysts expected Disney to reach $15.34 billion, versus the $15.23 billion they reported. Revenue increased 7% since last year. Most of their divisions missed the forecast marks. Still The Walt Disney Company is making a ton of money. Doesn’t take a business major to figure that out.
Additional Thoughts on the call
No one on the call was bold enough to ask Bob Iger about the James Gunn situation or if he has contacted Dave Bautista regarding the situation. Most questions were geared towards the Disney-Fox deal and the emerging streaming service. There wasn’t a single question about Star Wars: Galaxy’s Edge or possible Parks & Resorts expansions.
Closing Remarks
Dang! I would’ve liked to have seen someone ask Iger about James Gunn. It would of made for a “tweetable” moment. What I gathered from the call is that Disney is focused on this streaming service. Disney-Fox deal is starting to become clearer. Iger really digs National Geographic, and he loves Fox Searchlight and FX too. McCarthy briefly mentioned that the Fox deal could be complete in fiscal 2021/2022.
ESPN is still giving Disney trouble. Low viewership and declining advertising revenue is never a good sign, and has been a problem there for awhile. ESPN President James Pitaro will continue to steer that mothership. BAMTech will start to help, and ESPN+ could become intriguing to a lot of consumers during college football season.
Parks & Resorts and Studio Entertainment are currently unstoppable. I was surprised to see Consumer Products and Interactive Media have that quibble. It is going to be strange to watch Parks & Resorts and Consumer Products & Interactive Media merge.
The future looks bright for Disney in 2019. In which it was suppose to be the farewell Bob Iger year. Disney will reveal the streaming service later in the year, Star Wars: Galaxy’s Edge will be open at the parks, and they have the most stacked slate of films.
Zach Perilstein is the Editor-in-Chief of the Boardwalk Times
