If you want to read The Walt Disney Company’s Q3 earnings report
Sorry for the delay! I was out having fun in Disneyland during Disney’s Q3 earnings. Don’t worry we will be back on a timely schedule for Disney+ Day and Q4.
The Walt Disney Company reported its earnings for quarter three. Earnings per share were 80 cents, which was expected to be 55 cents. Disney revenue came in at $17.02 billion compared to the $16.76 billion that was expected.
Disney+ now has 116 million subscribers. The projection was Disney+ to have 113 million subscribers. So, this was a good win especially after missing the projection in quarter two.
Disney Parks, Experiences, and Products came roaring back. For the first time in the pandemic era, DPEP was profitable. Disney Parks, Experiences, and Products was up 100% year over year. Revenue in the segment jumped 308% to $4.3 billion.
Bob Chapek started off the call. Chapek says he like the trajectory Disney is on. Chapek also mentioned that Disney Cruise Line is booking well and that the Disney Wish is still scheduled to set sail in the summer of 2022.
Chapek also talked positively about Disney’s Magic Key program. According to him, the reaction has been positive for Disneyland’s annual pass replacement. Magic Key starts on August 25.
Chapek then discussed how Disney’s long-awaited Disney Parks artificial intelligence app the Disney Genie will allow better navigation throughout the parks and will create a more personalized experience for guests. Disney Genie should begin its rollout later this year.
Transitioning over to more on streaming, Disney now has 174 million subscribers across Disney+, Hulu, and ESPN+. Chapek says it is in large part to Disney’s plethora of new content plus international rollout. Disney has a large streaming footprint around the world. Chapek reiterated that direct-to-consumer is the company’s number one priority.
Chapek then announced a special Disney+ day on Disney+’s anniversary of November 12. Not a ton of details were shared on the day but it seems like we will get new announcements and new releases to celebrate Disney+. Thanksgiving night Disney+ will premiere Peter Jackson’s The Beatles: Get Back docuseries. Chapek also mentioned a ton of The Mandalorian spinoffs are on the way.
One tidbit that came out of Chapek’s remarks is that Disney is deciding on theaters verse streaming on a film-by-film basis currently. This means their only strategy is figuring out how to get the film out to the largest audience. Free Guy was successful this weekend as a theater-only option with $28 million. I’m sure Disney is hoping Shang-Chi does well despite its clear lack of marketing.
Chapek then hyped Disney’s incredible film slate which includes West Side Story and The Kings Man. In 2022, Chapek hyped the four Marvel films of Doctor Strange in the Multiverse of Madness, Thor Love and Thunder, Black Panther: Wakanda Forever, and The Marvels.
It seems like both Disney Parks, Experiences, and Products and Disney’s Media and Entertainment Distribution divisions are soaring back to normal. As long as they can hold off the Delta variant concern it seems like Disney is on the right trajectory.
Parks, Experiences, and Products
For the quarter, Disney Parks, Experiences, and Products revenues increased to $4.3 billion compared to $1.1 billion in the prior-year quarter. Segment operating results increased $2.2 billion to an income of $356 million.
Both Walt Disney World & Shanghai Disneyland were open for the entire quarter vs. the prior-year quarter. Walt Disney World’s third-quarter attendance levels were at or near capacity. Disneyland did well after California restrictions were lifted on June 15. The parks return to profitability!
Growth in merchandise licensing was primarily due to higher revenue from merchandise based on Mickey and Minnie, Star Wars, including The Mandalorian, Disney Princesses and Spider-Man
Media and Entertainment Distribution
Direct-to-Consumer revenues for the quarter increased 57% to $4.3 billion and operating loss decreased from $0.6 billion to $0.3 billion. The decrease in operating loss was due to improved results at Hulu, partially offset by a higher loss at Disney+. The Disney+ loss is due to higher production costs, technology costs, and rollout costs.
Total (so far): 174 million subscribers
Hulu’s Live TV + SVOD group continues to decline. Back in Q1, Hulu had 4 million subscribers for its Live TV package. ESPN+ added 1 million new subs from Q2 to Q3. Disney+’s growth is rapid. In the previous year’s quarter, the service was at 57 million subscribers which was considered great but now the service is at 116 million subscribers and carries higher and higher expectations to overperform.
Disney+’s ARPU (average revenue per user) came in at $4.10 which was better than the previous quarter’s $3.99. ESPN+’s ARPU is at $4.47 and Hulu’s SVOD only ARPU is $13.15 and the Live TV Hulu ARPU is $84.09.
Final Thoughts
Disney CEO Bob Chapek said theme park reservations continue to be strong. Disney is continuing to use yield management to maximize its efficiency. This will likely become a permanent fixture for the Disney Parks (AP’s and frequent park-goers shudder in fear…) Chapek’s thoughts on the Delta variant were pretty simple as the Disney Parks continue to do fine. “We see strong demand for the parks continuing. Primary noise on conventions canceling but on day-to-day visitors, we are not seeing any issues. Still bullish on the park attendance going forward.”
Chapek also answered on how the Disney Genie technology differs from MyMagic+. Chapek said the Disney Genie is like MyMagic+ on steroids. Disney believes guests are going to spend more time having fun verse waiting. Disney Genie will have everything personalized and create an overall better guest experience. Chapek says the app will be transformational for its parks operations.
Chapek says Disney Parks are close to being fully staffed but they are not quite at 100% yet. Chapek expects that to happen over a few months and parks should be fully staffed by end of the calendar year. He did note that this situation is ever-changing with COVID but Disney is doing this in a measured way.
The Disney Board of Directors will not pay a dividend for the first half of 2021 and going forward until they get back to a more consistent level of business. They are using that money to fuel Disney+ and other businesses.
“We live in a very uncertain world… we value the flexibility to make as many last-minute calls as we can.. we did not anticipate Delta variant at the same time we know partners need to plan business too — so we have made commitments,” said Bob Chapek regarding Shang-Chi’s release into theaters. I think Disney totally expected a healthier environment for Shang-Chi — I mean we all did — but Chapek at the end of the day is right. They have to test the waters at some point, and every single film released in the pandemic era is considered an “experiment.” This wasn’t some calculated shot at Shang-Chi’s quality or box office potential.
“We are looking at that as an experiment to see how that does in the marketplace. We assumed a much healthier environment for it to be released into. Due to distribution agreements, we have to keep our plans on that release.” — Bob Chapek
Could Chapek’s quote have been better? Sure, I guess? But at the end of the day, Disney has to stick with the distribution agreements it made with the theaters regarding Shang-Chi. Every single film in this pandemic is an “experiment.” From Black Widow to Free Guy these are all becoming data points for Chapek & Co to use once we finally get into a post-pandemic world.
Trust me, if Shang-Chi was truly an “experiment” for Disney they would be sending it straight to Disney+ with no Premier Access and seeing what it does for the service. Now that’s the “experiment” treatment. We should be grateful this is even getting a normal release without a delay. I won’t be taking film releases for granted anymore.
When Chapek was asked about the health of Disney+ he said that retention was healthy and churn was decreasing. He cited that the Disney Bundle and its great content have helped keep the streaming services healthy.
The Disney Bundle is here to stay. It seems like it’s a good formula for Disney instead of creating an all-in-one service at a higher price point. I mean almost 15 million people are paying for ESPN+? That’s a win for the Disney Bundle and a win for having choices.
Also, maybe Disney wants every service to keep its own lane. Disney+ is for families, Hulu is for adults, and ESPN+ is for sports. Maybe Disney doesn’t want an app with a user interface where you can go from watching Moana to UFC to Sons of Anarchy? Even though for some that sounds cool it is clear they want it to remain a clean experience across the board.
Chapek also mentioned that churn rates on a bundle are lower than churn rates on the singular channel and that customers like the value of the bundle pricing.
Chapek cited that Disney Premier Access has been a winning strategy for Disney during times of a fluid marketplace. Chapek also said Disney will figure out ways to fairly compensate talent. I still would love to see more Premier Access numbers. How well does Premier Access do after that initial premiere? How many subscribers were buying Cruella, Black Widow, and Jungle Cruise for $30 a pop once the hype died down?
Although no one directly asked about ScarJo, Chapek made the point that Disney has entered into hundreds of compensation agreements since COVID began and they are trying to do the best for their constituents. It’s clear Disney paid Emma Stone off and soon ScarJo should be next. But the big key for the future of compensation is getting the world healthy enough to have the box office become viable again.
Another major quote from Chapek during the call about Disney’s streaming future.
Looking at it as a very long game ahead. We are in the first inning of the first game — we’ve only just begun. Confidence in powerhouse franchises and great content.
Disney is in the first inning and they are nearing almost 200 million subscribers overall. If this is the first inning I wonder what Disney+, Hulu, and ESPN+ will look like in the fifth inning?
To wrap up the call, Chapek provided very minimal details regarding the upcoming Disney+ Day on November 12. Chapek said the day will be a balanced approach between global and local products. Disney will unveil a very exciting lineup to approach folks who are not subscribers yet. It’s going to be a great opportunity to get new subscribers in on that day. Chapek says there is a lot of excitement and more of the titles will be revealed soon.
Well, Disney+ and the Disney Parks are on their way again. There is a lot of things to watch over the next couple of months including Delta worries, Shang-Chi’s performance (and the potential fallout), Disney Parks’ evolution, continuing to accelerate Disney+ as the top priority, and how Disney plans to return to traditional marketing and theaters.
My last take of the day is that Disney should start spending more on capital expenditures on their parks now that they are back to profitability in the division. The parks desperately need to finish new projects and we honestly need some new projects announced so Disney can’t afford to neglect them and not reinvest into their most stable moneymaker.
I’m betting Disney will have a huge Q1 earnings call. Q4 should be fine but 2022 Q1 should be incredible considering October 1, 2021, marks the start of the new fiscal year, and well Disney is doing a lot on that day and in the coming months.
See you in November for the fiscal full year and Q4 earnings call!
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Zach Perilstein is the Editor-in-Chief of the Boardwalk Times
