If you want to read The Walt Disney Company’s Q1 earnings report
Here we are the first earnings call in a Disney+ world. The streaming service that is transforming how Disney operates. Earnings per share came in at $1.53 vs $1.44 expected. Revenue came in at $20.86 billion vs. $20.79 billion expected.
After the market closed, Disney announced Q1 subscriber figures for Disney+, Hulu, and ESPN+. Disney+ has 26.5 million subscribers with 50% coming straight through Disney, and 20% through their Verizon deal. ESPN+ grew in subscribers to 6.6 million, (it’s now at 7.6 million as of Monday). A million paid for the McGregor/Cerrone UFC fight, and a half became ESPN+ subs. Hulu is at 30.4 million subscribers, with 3.2 million have Hulu with live TV.
Bob Iger went on to highlight Disney’s massive $11 billion box office year, the success of Disney Parks’ newest attraction Rise of the Resistance, and that Disney+’s churn rate wasn’t as bad as they expected.
Iger also confirmed big news that The Falcon and The Winter Soldier would be coming to Disney+ in August. WandaVision will be in December. The Mandalorian season two will be out in October.
Iger also mentioned that there could be The Mandalorian spinoffs in the future. There are also several other Marvel Disney+ series in development. Iger reiterated on the call that Rogue One prequel series and Obi-Wan Kenobi series are still in the works at Disney+, and the current future of Star Wars will be television.
Iger also noted that Disney+ tracks frequency and engagement although he didn’t go into further details. He did state that 65% of the people who watched The Mandalorian watch ten other things. Iger didn’t hide away from the fact that the company is clearly focused more on Disney+ than it is Hulu. They did state that the ARPU for Hulu users is strong.
Disney’s DPEP segment operating income dropped by over $175 million due to closures at Hong Kong and Shanghai Disneyland in Q1. Disney also doesn’t know how long the parks will remain closed due to the Coronavirus. Hong Kong was already struggling due to protests. In Q2 of 2020, it is expected that Hong Kong and Shanghai Disneyland Resort will have a total loss of operating income of over $280 million.
Yet, Iger made sure to mention this won’t scare Disney away for more international growth for the parks. He also highlighted on the domestic side of the Disney Parks. Disney will continue to invest capital in new restaurants, hotels, and attractions. He even specifically highlighted a couple of projects like Avengers Campus, Guardians of the Galaxy E-Ticket attraction, and the upcoming Star Wars Resort.
Parks, Experiences, and Products
Parks, Experiences and Products revenues for the quarter increased 8% to $7.4 billion, and segment operating income increased 9% to $2.3 billion.
Operating income growth comes from higher merchandise licensing and performances at the domestic parks, offset by the performance of the international resorts. Merchandise based on Frozen, Star Wars, and Toy Story did well in comparison to Mickey & Minnie. Higher operating income at the parks was mostly in part to Star Wars: Galaxy’s Edge. Although there was a decrease in revenue and operating income at both Hong Kong Disneyland and Shanghai Disney Resort due to the Coronavirus.
Direct-to-Consumer & International
Direct-to-Consumer & International revenues for the quarter increased from $0.9 billion to $4.0 billion and segment operating loss increased from $136 million to $693 million.
The increase in operating cost comes from three things:
DTCI seems to have a bright future, as many big names want to work with Disney+ & Hulu. Disney+’s international rollout will heat up in March, with a key date being its launch in India as included with Hotstar. Although Q2 is expected to see DTCI rack up a $900 million loss due to the content cost, European rollout, continued consolidation of Hulu, and obviously ESPN+.
Media Networks
Cable Networks revenues for the quarter increased 20% to $4.8 billion and operating income increased 16% to $862 million. Higher operating income was due to the consolidation of 21st Century Fox businesses (primarily the FX and National Geographic networks), partially offset by a decrease at ESPN.
Broadcasting revenues for the quarter increased 34% to $2.6 billion and operating income increased 41% to $575 million.
There was lower advertising revenue for the cable and broadcasting networks and operating costs that came with ESPN’s ACC Network launch. Not to mention the increasing cost of NFL, College Football Playoffs and other college sports content for ESPN.
The focus was clearly not on the media networks as Disney+ and the DTCI segment are the hottest new thing but I’m suspecting Disney will be pressed more about its legacy business model as the streaming wars heat up.
Studio Entertainment
Studio Entertainment revenues came in at $3.76 billion during the quarter, up from $1.8 billion during the year-ago period. Q1 this year had Frozen II and Star Wars: The Rise of Skywalker in comparison to last year where Disney had Ralph Breaks the Internet and Mary Poppins Returns.
The operating results at the 21st Century Fox business come from TV/SVOD distribution which offset from a loss in theatrical distribution.
CFO Christine McCarthy explained that she expects Disney Studios slate to do well in 2020 despite it probably not reaching the insane level of the 2019 slate.
The last earnings call took place before Disney+ launched. Now here we are. This call answered some questions about Disney+ but a lot still remains up in the air. It seems Disney is really confident that the original content they make for the service will be worth subscribers sticking around.
Yet, Disney has yet to address its future plans for its 21st Century Fox assets. The company recorded $150 million, primarily for severance, in connection to the integration of 21st Century Fox this quarter.
Disney needs to address how they see Hulu, 20th Century Studios, FX, Blue Sky Animation Studios, and Searchlight Pictures fitting into their model. It does still seem like Hulu is not getting enough attention, and it will be fascinating to see how things change there by the time we get to the Q2 call. Streaming competitors like NBCUniversal’s Peacock and WarnerMedia’s HBO Max could severely damage Hulu. If Disney doesn’t start to reveal more of its future plans.
Disney’s original forecast for Disney+ subscribers was 60 million to 90 million by 2024. So, the company is definitely on pace to reach that goal by fiscal 2024.
It seems like the Parks, Experiences, and Products division is chugging along. Curious to see when Disney will start to unveil their grand plans for the 50th anniversary of Walt Disney World Resort. A period of time which should see some incredible attendance and a flurry of new attractions.
The next big Disney corporate event where we could get some major news is the Annual Shareholders Meeting that is going to be in Raleigh, North Carolina on March 11.
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Zach Perilstein is the Editor-in-Chief of the Boardwalk Times
