Disney CFO Hugh Johnston on Q3 results: Our consumer is doing very, very well

Key Concepts:

• Direct-to-Consumer (DTC) business profitability
• Subscriber growth
• Experiences (Parks) revenue and operating income
• Streaming vs. Renting Content
• ESPN app launch and features
• Bundling strategy (Disney+, Hulu, ESPN)
• Cord-cutting trends and impact on cable business
• Consumer behavior and preferences
• Strategic priorities: Creativity, Sports, Streaming Profitability, Turbocharging Parks

Earnings and Financial Performance

• Disney's overall quarter was strong, with 2% revenue growth, 8% operating profit growth, and 16% EPS growth.
• The Direct-to-Consumer (DTC) business performed exceptionally well, generating $350 million in profit, exceeding estimates.
• DTC subscribers grew by 2.6 million.
• DTC revenue increased by 9%.
• Experiences (Parks) also had a strong quarter, with 8% revenue growth and 13% operating income growth.
• Walt Disney World had its biggest Q3 ever.
• Traffic to parks was slightly up, and per capita spending was up significantly.
• Guidance for DTC business profit was raised from $1 billion to $1.3 billion for the year.
• The DTC business was losing $1 billion per quarter just a couple of years ago.

Strategic Advantages in Streaming

• Disney differentiates itself from competitors by primarily creating its own content for its streaming services (Disney+, Hulu, ESPN+), rather than renting content.
• The company owns a vast library of content from Disney, ABC, News, Marvel, Pixar, and ESPN.
• This strategy is expected to drive continued growth and subscriber acquisition.
• Disney anticipates adding 10 million subscribers in Q4.

ESPN App and Bundling Strategy

• The new ESPN app, launching on August 21st, aims to innovate the sports viewing experience.
• Features include multi-view of games, personalized sports center (e.g., Bengals and Reds for a Cincinnati fan), betting, fantasy sports, and e-commerce integration.
• The goal is to make the app "sticky" and engaging for sports fans.
• A bundle including ESPN, Disney+, and Hulu is priced at $29.99.
• The bundle is designed to reduce churn (subscriber turnover) by providing more value and reasons to stay subscribed.

Impact of Cord-Cutting and the Cable Business

• The CFO acknowledges the trend of cord-cutting (canceling cable subscriptions) but believes the notion that sports are the only thing holding cable together is overrated.
• Cord-cutting has leveled off somewhat.
• Disney aims to be "indifferent" to where consumers choose to access content, whether through cable or streaming.
• The company believes the ESPN app and streaming strategy will be accretive to overall earnings, even considering the potential decline in cable revenue.
• The goal of ESPN is to reach sports fans wherever they are.

Bob Iger's Strategic Priorities

• Bob Iger, upon his return, outlined four strategic priorities: creativity, sports, streaming profitability, and turbocharging the parks.
• A year ago, the focus shifted from "fixing" to "building."
• The current focus is on building for the consumer and catering to their preferences.

Conclusion

Disney had a strong quarter driven by the performance of its DTC business and Experiences (Parks). The company is strategically focused on creating its own content for streaming, innovating the sports viewing experience with the new ESPN app, and offering a compelling bundle to reduce churn. While acknowledging the trend of cord-cutting, Disney aims to be present wherever consumers choose to access content, whether through cable or streaming. The company is confident in its ability to continue growing and delivering value to shareholders.