Yesterday, The Walt Disney Company held an earnings call regarding the end of their fourth quarter and end of their 2020 fiscal year.
The Disney executives on the call shared a LOT of information about Disney’s finances, the situation with their theme parks and entertainment, and some ideas about the future. Today we’re breaking down the BIGGEST things you may have totally missed from yesterday’s call.
Direct-To-Consumer is the BIG Focus Moving Forward
If you listen to the call yesterday or have read a transcript, you’ll hear (or see) JUST how many times Bob Chapek (the current Chief Executive Officer of The Walt Disney Company) and Christine McCarthy (the current Senior Executive Vice President and Chief Financial Officer) mention the words “direct to consumer,” “DTC,” and Disney+. Chapek specifically noted that “DTC business is key to the future growth of our company,” and talked about how Disney recently restructured their businesses because of that.
Chapek also said that the recent reorganization helps Disney better align themselves as they pivot “to a DTC-first business model.” Note that Chapek didn’t say it was a DTC-emphasized model or just a model where DTC is very important — it’s a DTC-first model. That speaks volumes as to where Disney’s primary focus really will be moving forward.
Additional Direct to Consumer Info
Chapek also said he sees the DTC business as a “key driver of significant long-term value for [the] company.”
So, you may have gotten all of that from yesterday’s call, but did you notice just HOW determined the Board of Directors is to make sure Disney can continue to invest in its DTC business? Christine McCarthy said, “As part of that commitment and given limited visibility due to COVID and our decision to prioritize investment in our DTC initiatives, the board has decided to forego payment of a semiannual dividend in January 2021.”
That’s right, no semi-annual dividend for The Walt Disney Company will be issued in January partially to make sure the Company is able to prioritize its investment in DTC content. Disney isn’t playing around here.
Already watched EVERYTHING that’s on Disney+? Don’t worry, Disney’s statements make it clear that more is content on the way. Chapek noted that it is clear that “new content adds subscribers” and he thinks we’ll “see a continued increase in investment in our direct-to-consumer platforms.”
Other Disney+ or DTC-related words from Mr. Chapek?
- Chapek referred to Disney’s DTC business as “the real bright spot amid the pandemic”;
- Chapek said Disney is going to “put a lot of wind in the sails of [their] Disney+ business and heavily invest in it”;
- According to Chapek, Disney will “continue to ramp up [their] investment in DTC”; and
- Chapek also noted that they will be “heavily tilting the scale from linear networks over to our DTC business.”
So, it’s pretty clear — Disney+ and Disney’s other direct-to-consumer platforms will likely get a LOT of love in the future. But not just that, it appears they’re going to be the focus of the business going forward in a way we haven’t quite seen before.
Investor Day is Going to be BIG
Disney will be holding a virtual Investor Day in December, and while we always expect to hear some important news during investor days, it seems this one will be particularly important.
Investor Day was mentioned several times during the earnings call, often in reference to…no surprise here, Disney’s DTC business. Christine McCarthy said Disney is excited to share more details about their “evolving DTC strategy” during Investor Day, and Chapek also said that the continued increase in investment in the DTC platforms will also be discussed on Investor Day.
In reference to their DTC business, Chapek said Disney intends to build on their success and will share more plans at Investor Day. We’re also set to get an update on Disney+ global subscriber numbers and Hulu advertising on Investor Day. We will definitely be listening in on Investor Day and we’ll bring you the latest updates, so stay tuned!
Premier Access Will Likely Come Back
Earlier this year, Mulan was released on Disney+ for an additional cost through its “Premier Access” program, although it will soon be free to all Disney+ subscribers. Disney has since decided to release Soul for free on Disney+ however, and we had some thoughts on what that could mean for future Disney films. Could it mean that premier access is going away? Apparently not.
During a conference held in early August of this year, Bob Chapek said that Disney was “looking at ‘Mulan’ as a one-off as opposed to saying there’s some new business windowing model that we’re looking at,” according to Variety.
But his statements in the earnings call seem to be a bit different. Chapek said that Mulan was Disney’s “first foray into a strategy like premier access.” He noted that their experience with Mulan showed that there’s “something here in terms of the premier access strategy.” It’s another item that Chapek said we’ll learn more about on Investor Day.
According to Chapek, with the experience of Mulan, Disney has learned that there is “going to be a role for it strategically with [their] portfolio of offerings.” So, it looks like premier access could be returning as a strategy for some Disney films in the future.
Will ALL big hits go to Premier Access first? It’s unclear, but possibly not. Chapek acknowledged that “part of the lifeblood of Disney+ is providing great content to the base-level subscribers.”
He said that Disney thought it was a “nice gesture” to the Disney+ subscribers to provide Soul as part of the regular service during the holiday season. What big movies will be released on Disney+ as part of the service vs. on premier access is something we don’t know, but we will definitely be interested to hear more during Investor Day.
NEW Movies and TV Shows Are On the Way
Disney clearly intends to invest in its businesses and provide great content for its fans, but just how many new things are in the works? We got some more information yesterday. Chapek mentioned that Disney has been able to restart or complete production on the projects that got halted by the pandemic, and that they anticipate having 8 NEW projects “up and running by January.” We’re not sure what these new projects are, but we’re excited to hear that they’ll be moving forward.
Chapek also said that, in terms of television shows, Disney now has “more than 100 live-action scripted and unscripted projects in active production with dozens more in various stages of pre- or post-production.” That’s a LOT of TV. Whether those are projects that are currently available on (or will eventually go to) cable or a direct-to-consumer service is unclear, but we are always on the lookout for the latest news.
Sports Are Important
While Disney+ was mentioned a lot, Chapek didn’t forget about ESPN and sports in general. He noted that, if you look at the “most watched cable shows on TV this year, more than half have been live sports.” But, there are risks when it comes to sports.
Chapek acknowledged that there are risks that games may be canceled or a season may not finish due to the pandemic. Also, there are no (or little) fans in the stadiums, and fans can’t really get together in large gatherings to watch the games. Still, he said Disney doesn’t have concerns about the long-term health of sports.
He also pointed out that ESPN+ has reached more than 10 million paid subscribers, nearly tripling in size over the past year. So, Disney is definitely not discounting sports from their overall portfolio.
Disney World is Getting Busy
In case you missed it, this earnings conference made one thing pretty clear — Disney World is getting busy! Thanksgiving week capacity is close to 100% already and the parks are already booked at 77% for Q1 of the 2021 fiscal year (basically through the end of 2020).
But that’s not all, Chapek acknowledged that Disney World has actually increased their capacity from 25% to 35% — so not only are things booked, but more people are able to go in general. Of course, things are subject to change in the future, but it is interesting to hear exactly at what capacity is operating right now considering we have seen some large crowds in certain parks and at certain times.
Q1 of Fiscal 2021 May Not Be Too Great
Q1 of Disney’s fiscal 2021 year started in early October and should end around early January. Christine McCarthy gave an idea of how things may be looking for the company during that time. Specifically, Disneyland is expected to remain closed throughout 2020, and Disneyland Paris is also closed.
Disney also doesn’t have any significant theatrical releases planned for Q1 so they’re expecting a lower quarter in terms of results as compared to last year where the new Star Wars film and Frozen 2 were released around this time. Home entertainment, stage play, and consumer products are also all expected to be lower in terms of results or otherwise adversely impacted.
Interestingly, McCarthy also said they “expect the Q1 operating results of our DTC businesses to decline by approximately $100 million relative to the prior-year quarter driven by continued investment in Disney+,” partially offset by some other matters. Still, Disney appears to be dedicated to investing in their DTC business regardless of whether that results in a decline in the quarter.
Cruising Will Be Delayed But People Want to Sail
In terms of cruising, the CDC recently released some new guidelines that companies must meet in order to sail again. Chapek noted that those guidelines are “quite thorough” and entail some “high hurdles” in terms of testing and the processes that have to happen to certify their first sailings. Chapek said that this will necessarily result in delays beyond what Disney had hoped in terms of getting its guests back onboard its ships.
But, make no mistake about it, Chapek has indicated that guests do want to cruise. He said that there’s an extremely strong demand for the back half of their 2021 fiscal year and all of their 2022 fiscal year in terms of bookings. So, even with the uncertainty of not knowing when cruising will start again or what it will look like when it does, it seems some guests are still looking forward to eventually sailing the seas.
Disney Still Has a LOT of Cash, But Not as Much as Before
Finally, we come to the last thing you may have missed — Disney still has a lot of cash, but not as much as before. We’ve talked about how much cash Disney has before and why, but yesterday we got an update on that. Christine McCarthy noted that while Disney had $23 billion in the prior quarter, as of the end of fiscal 2020, their “cash and cash equivalents are a very healthy $18 billion.”
So, that is a reduction of about $5 billion from the last quarter. McCarthy gave some explanations about the reduction, saying they lowered some balances by almost $5 billion and took care of some bond maturities. Despite this reduction, McCarthy said Disney is “still generating operating cash” and investing in their content now, so they’re managing the situation.
With continued park closures in Disneyland Resort and Disneyland Paris, continued delays in theatrical releases, and the pandemic still very much in effect, it appears Disney is continuing to hold onto its “healthy” amount of cash as much as possible to ensure they are in a good financial situation moving forward. We will continue to monitor this as we get more information in the upcoming quarters.
Well, that’s our list of the top things you may have missed from yesterday’s call. We’re excited to see what BIG news is released on Investor Day and in the future, and we’ll continue to keep you updated on all of it!
Click here to learn more about the Q4 earnings report and what was discussed during the earnings call!
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What are you hoping to learn more about during Investor Day? Let us know in the comments!