If you want to read The Walt Disney Company’s Q4 earnings report.
We are just days away from the launch of Disney+. The streaming service showcases a transformation of the company as it heads into the future. Earnings per share came in at $1.07 vs 95 cents expected. Revenue came in at $19.1 billion vs. $19.04 billion expected.
Bob Iger started off the call excited about Disney being on the verge of a new era with Disney+ just a few days away. Iger went on to discuss both ESPN+ and Hulu. Iger even announced that Hulu will be the official streaming home of FX Network. Along with the fact, FX will be producing four new original series for the service in 2020. Mrs. America, Devs, A Teacher, and The Old Man are the four original series. FX will have its very own “hub” on Hulu.
Iger also said that Disney was pleased with the test results of Disney+ in the Netherlands. Boardwalk Times columnist Iris Nijholt gave a tour of the system’s interface which Iger praised. Iger is proud of all the creative engines across The Walt Disney Company who are creating compelling content for Disney+. Then he made another huge announcement.
Disney+ will launch in the United Kingdom, Germany, France, Italy, and Spain on March 31, 2020. With more countries to be announced soon. Iger also announced that Disney struck distribution deals with Amazon, Samsung, and LG for Disney+.
ESPN+ currently has 3.5 million paying subscribers. Hulu has 28.5 million paying subscribers. Iger mentioned that Hulu is a significant driver of advertising revenue. He also went on to talk about how thrilled Disney is about the consumer reaction to Disney+, along with the successful Disney+ Netherlands testing where features like 4K and HDR, personalization, and unlimited downloading are popular.
Disney’s direct-to-consumer shift is evident. Disney CFO Christine McCarthy explained that the US subscriber base for Disney+ has a head start on the rest of the countries. Iger was also asked about Fox Searchlight where he discussed how that studio will develop content for Hulu, and how some of their previous content will be tangled up at HBO for a few years before shifting to Hulu.
Both Iger and McCarthy discussed Star Wars: Galaxy’s Edge. The biggest theme park expansion in the history of the Disney Parks both at Disneyland and Walt Disney World. Iger believes there are delayed visits for Galaxy’s Edge considering the land isn’t completed yet. He also added that Galaxy’s Edge is doing better than it is being reported. Stating that 5 million guests have been on Millennium Falcon: Smugglers Run. This also lead to Iger/McCarthy discussing Disney’s pricing strategy when it comes to the parks. McCarthy feels good about the domestic park’s product and the current demand for it.
Parks, Experiences, and Products
Parks, Experiences and Products revenues for the quarter increased 8% to $6.7 billion, and segment operating income increased 17% to $1.4 billion. Merchandise licensing, Disneyland Resort and Disney Vacation Club played a huge factor in the increases.
Higher operating income at merchandise licensing was due to an increase in revenue from sales of merchandise based on Frozen and Toy Story.
Growth at Disneyland Resort was due to higher guest spending but offset with expenses from Star Wars: Galaxy’s Edge. The increase in operating income at Disney Vacation Club was due to higher sales at Disney’s Riviera Resort in the current quarter compared to sales of Copper Creek Villas & Cabins in the prior-year quarter. Guest spending grew at Walt Disney World resort but was also offset by expenses surrounding Star Wars: Galaxy’s Edge. Currently, bookings for Disney hotels are pacing up 5%.
Disney is expecting a doozy of a year for Hong Kong Disneyland Resort. Disney CFO Christine McCarthy is expecting an $80 million hit in Q1 of 2020. With a potential operating decline of $275 million for fiscal 2020.
Direct-to-Consumer & International
Direct-to-Consumer & International revenues for the quarter increased from $0.8 billion to $3.4 billion and segment operating loss increased from $340 million to $740 million.
The increase in operating loss was due to the consolidation of Hulu, the preparation and marketing blitz for the upcoming Disney+ service, and the ongoing investment in ESPN+. The decreases were partially offset by Star India.
Iger said that within five years Disney+ will contain 620 movies and 10,000 television episodes. By then, Disney will also be adding 60 original pieces of content annually to the platform.
Media Networks
Media Networks revenues for the quarter increased 22% to $6.5 billion, and segment operating income decreased 3% to $1.8 billion. Cable Networks revenues for the quarter increased 20% to $4.2 billion and operating income decreased $19 million to $1.3 billion. Broadcasting revenues for the quarter increased 26% to $2.3 billion and operating income decreased $17 million to $377 million.
The decrease at Disney’s broadcast legacy operations was due to lower ABC Studios program sales, an increase in programming and production costs at the ABC Television Network, and a decrease in advertising revenue and higher marketing costs.
The lower operating income was due to ESPN but offset by 21CF television businesses.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 52% to $3.3 billion and segment operating income increased 79% to $1.079 million.
The increase in theatrical distribution results was due to the performance of The Lion King, Toy Story 4 and Aladdin in this quarter compared to the prior-year quarter which had Incredibles 2 and Ant-Man and the Wasp. Operating results at the 21CF studio businesses reflected a loss from theatrical distribution caused by Ad Astra, Art of Racing In The Rain and Dark Phoenix. The loss was partially offset from TV/SVOD distribution.
Looking ahead for Q1 on the Studio Entertainment side. Christine McCarthy is enthusiastic about the releases of Frozen II and Star Wars: The Rise of Skywalker as they are expected to be big box office wins for Disney. However, McCarthy warned that the success will be offset by the 21CF studio business.
During the quarter, The Walt Disney Company recorded charges totaling $314 million, primarily for severance, in connection with the integration of 21CF.
In relation to both Media Networks and Studio Entertainment, Iger explained that Disney is in a tough marketplace for television/film talent. This is obvious considering the massive deals showrunners are getting from streaming services and studios. Disney+ will have films monetized in the theatrical window, the home video window, and then moved to Disney+ platforms. An example of this window being changed is Avengers: Endgame coming to Disney+ on opening day instead of December 11.
McCarthy added that they feel confident about fiscal 2020 for Disney. Iger and Co. are optimistic in their streaming offerings and in the integration of 21st Century Fox despite the bleeding it does to Disney’s Studio Entertainment division. Iger highlighted Disney’s unique reach and why brands will matter. It’s clear that Iger is confident that Disney+, Hulu, and ESPN+ will be able to fend off the likes of Netflix, Amazon, Apple, NBCU’s Peacock, and WarnerMedia’s HBO Max.
Now we wait for Tuesday.
Zach Perilstein is the Editor-in-Chief of the Boardwalk Times
