If you want to read The Walt Disney Company’s Q3 earnings report
As the COVID-19 pandemic charges on, The Walt Disney Company reported its earnings for the third quarter. COVID-19 has had a tremendous impact on all of Disney’s core businesses. Yet with all the challenges, Disney CEO Bob Chapek remains optimistic for Disney’s future specifically in its Direct-to-Consumer International division. Earnings per share came in at 8 cents. Revenue came in at $11.78 billion. Which was 42% lower than the previous year’s quarter.
Disney CEO Bob Chapek started the call discussing the current situation in our nation in regard to the COVID-19 pandemic and social justice. Chapek mentioned that Disney is hoping for greater representation and inclusion in the future. Chapek then transitioned into talking about the Disney Parks safely reopening around the globe. It’s also important to note that Disney Executive Chairman Bob Iger didn’t speak on the call.
Chapek proceeded to call Disney’s DTC (direct-to-consumer) division the company’s top priority for the future. Disney boasted the fact they have 100 million paying subscribers across Disney+, Hulu, and ESPN+. Chapek also confirmed at the end of Q3, Disney+ had 57.5 million subscribers. He then proudly announced Disney+ had 60.5 million subscribers as of today. Passing the 60 million subscribers mark is a huge deal for Disney considering that was its low-end goal for 2024.
Chapek said that by the end of this year, Disney+ would be in nine of the top ten economies around the world. Disney+ will continue its expansion around the globe. Chapek cited that Disney+’s successes will allow the company to be more aggressive and innovative in the future.
Chapek seemed proud of Disney+ for being a place that could premiere cultural events like Hamilton and Beyonce’s Black is King. Although nobody asked Chapek the natural follow up question of “how many views” did Hamilton and Black is King get? It seems safe to assume that Hamilton drew in a wave of new subscribers that lead Disney+ to reach that 60.5 million subscriber mark.
Disney CEO Bob Chapek also didn’t fail to mention that The Mandalorian scored Disney+, a whooping 15 Emmy nominations. The Walt Disney Company earned over 145 Emmy nominations. Chapek then dropped the motherload of all news. When he announced that Mulan (which was delayed indefinitely) would now be a part of a premier access feature on Disney+. Disney is charging $29.99 for Mulan. The film will be available for purchase on the platform on September 4.
Mulan moving to Disney+ is a transformative move, and it shows that Chapek has some strategies up his sleeves. Chapek hinted that this would be a “one-off” until theaters can come back but it seems like more films may go this route in the future (I’m looking at Pixar’s Soul). Chapek said he would reveal more about the future at a future Investor Day later this month. Chapek seems optimistic about Disney’s way forward despite all the craziness.
The Parks, Experiences, and Products division forecast saw the division taking a $2 billion hit. Which that forecast would end up being accurate. Revenue in the division fell 85% to below $1 billion. Disney’s third-quarter occurs from April to June. Domestic parks, resorts (plus Disneyland Paris), and cruise lines were all closed for the quarter. Shanghai Disney Resort and Hong Kong Disneyland would also reopen during this quarter. Disney Springs and some Disney Vacation Club resorts did open in the late part of the quarter so that had an effect on the revenue. Disney CFO Christine McCarthy made it clear that Walt Disney World is open has been a net positive but that the demand will be stronger once COVID-19 is contained.
Parks, Experiences, and Products
Parks, Experiences, and Products revenues for the quarter decreased by 85% to $1.0 billion, and segment operating results decreased $3.7 billion to a loss of $2.0 billion.
This division is suffering the biggest wrath of COVID-19 disruption, and it’s easy to speculate that COVID-19 has affected the overall future of this division when it comes to future projects. On top of most of the parks and resorts being closed for this quarter, licensing and retail deals paced down. The net adverse impact of the entire division was $3.5 billion.
Direct-to-Consumer & International
Direct-to-Consumer & International revenues for the quarter increased 2% to $4.0 billion and segment operating loss increased from $562 million to $706 million. The reason for the operating loss increase is due to the global rollout of Disney+, although it was partially offset by ESPN+ and Star. ESPN+ subscriber growth is in part due to the UFC.
At the end of quarter three this is how Disney’s DTCI family looked:
Chapek also confirmed he has no plans to take Hulu internationally. The ARPU (average revenue per user) for ESPN+ decreased due to the Disney streaming bundle. Hulu seems to be doing well despite new competitors (HBO Max and Peacock) entering the streaming wars. Hulu’s growth will be something to look out for in Q4.
Media Networks
Media Networks revenues for the quarter decreased 2% to $6.6 billion, and segment operating income increased 48% to $3.2 billion. Cable Networks revenues for the quarter decreased 10% to $4.0 billion and operating income increased 50% to $2.5 billion. The Media Networks division isn’t doing as bad as Parks, Experiences, and Products or Studio Entertainment.
There was an increase in program sales which included The Simpsons, Modern Family, and The Politician. Also, the decrease in programming cost was because of the COVID-19 production shutdowns. It seems like the Media Networks division is doing alright, and probably will have a better Q4 due to the return of sports for ESPN and hopefully some new content for the networks.
Studio Entertainment
Studio Entertainment revenues for the quarter decreased 55% to $1.7 billion and segment operating income decreased 16% to $668 million.
Theatrical distribution didn’t exist for this quarter. The prior-year quarter had releases like Avengers: Endgame and Aladdin. There was growth in the TV/SVOD business with Disney+ adding Star Wars: The Rise of Skywalker and Onward.
Disney’s Direct-to-Consumer business still remains the company’s brightest spot. It’s clear that division is still able to be successful in a pandemic world. That’s why Chapek’s eagerness for it makes sense. Disney will want to invest in the DTC services as much as possible because they will eventually make a huge return on investment. So, now that Disney is experimenting with PVOD within their SVOD, the possibilities for future growth are endless. I still think Disney isn’t going to completely abandon the theatrical model though. I said that in my mailbag before this earnings call.
It’s clear that Parks, Experiences, and Products is the most disrupted. It would be nice if Disney provided more clarity on the Park’s future in regards to future projects and possible price changes to attract more guests. Seems like the Parks, Experiences, and Products division may need new strategies for the future. Studio Entertainment will struggle until we get some answers regarding COVID-19 and movie theaters. I’m expecting that by this fall we will see a slow return to movie theaters in the U.S. depending on how things are handled by the government in the next few months. Media Networks is in a relatively good spot, and ESPN will benefit from having sports back.
Boardwalk Times released a poll on our social media channels asking Boardwalkers (our fans) if they were willing to pay the price of $29.99 for Mulan. Right now, an overwhelming amount is saying no. Even though this is a small sample size it’s clear that Disney is still taking a risk with Mulan and that this experiment may not work out.
Disney CEO Bob Chapek looks to guide Disney into the future. He’s relying on innovative ideas and Disney’s streaming service to help Disney get there. It’s clear that Disney’s upcoming Investor Day event will be important. That is something Boardwalk Times will be covering once we know the date.
The major key for Disney right now is out of their control. Like most businesses, Disney’s true path back to greatness will be when COVID-19 is finally contained. Once consumers confidence returns it is safe to assume that Disney’s core businesses will come back with a bang.
The next Disney event will be Disney’s Investor Day for their Direct-to-Consumer division. We should get more updates then. Until then let’s hope things will be better for all of us.
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Zach Perilstein is the Editor-in-Chief of the Boardwalk Times
