Disney Q1 2023 Earnings Recap: 5 Things We Learned and 5 Things We Didn’t

Disney’s first earnings call with Bob Iger at the helm was as much of a blockbuster as we expected. With the upcoming proxy fight and the liquidation of the former CEO’s legacy, it’s almost as if the company thought it would throw us off by announcing sequels to some beloved animated franchises, with extra cash coming back into investors’ pockets in the form of dividends. And you’d think that with 7,000 people being let go in Burbank, at least one analyst would have a question for Iger about it.

Unbelievably, all of this still leaves many questions unanswered and threads dangling. Hopefully we’ll clear some things up before next quarter.

5 things we learned

A major reorganization means major layoffs

Bob Iger followed through on his commitment to return power and accountability to Disney’s creatives, restructuring the company into just three divisions: Parks, ESPN and the newly formed Disney Entertainment. There are a lot of creatives and people coming under this new roof, now co-led by Dana Walden and Alan Bergman, and that means those creatives will be the ones making (and taking responsibility for) what’s coming. where it is marketed and how it is marketed. However, this will eliminate 7,000 jobs, many of them likely in the entertainment industry. Former CEO Bob Chapek’s prized DMED division is gone, and Disney hopes all the new moves will translate into $5.5 billion in cost-saving synergies.

Connected

Connected

As Iger and CFO Christine McCarthy clarified Wednesday, roughly $3 billion in savings will come from cutting content spending. Those changes won’t be noticeable in 2023, they explained, leaving Disney still in the low $30 billion range for total content spending. However, Iger said several times during the call that Disney wants to focus on “more aggressive curation” when it comes to content to reduce costs on the general entertainment side of things, and that means taking a hard look at the costs of what Disney makes. . Iger gave the example that by bringing all the creatives under one unit, they can better design for both global and local international audiences.

“Frozen” and “Toy Story” and “Zootopia,” Oh My!

It’s not exactly a surprise when Disney announces a sequel to one of its franchises, but during the call, Iger announced not one sequel, but three. Parts of the “Frozen” and “Zootopia” series are being developed by Walt Disney Animation Studios, while the fifth “Toy Story” movie is coming from Pixar. Iger mentioned it a recent Nielsen report this may have prompted him to give the green light to all three projects. No other information has been released about these films — including creative teams, release dates and how in the world the “Toy Story” saga continues after Woody and Buzz’s heartbreaking farewell in the fourth film — but they could help animation in the at company. at the box office after underperforming last year’s “Lightyear” ($226 million against a $200 million budget) and “Strange World” ($73 million worldwide).

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ESPN is not for sale, so stop asking

When Iger announced that ESPN would now be a separate entity from Disney Entertainment, he knew he would get a lot of questions about whether this meant the separation from Disney was finally complete. And prepared. Iger would not mince words, but was emphatic that ESPN is not for sale, adding that the sports brand is still a “differentiator for the company” but they need to figure out how to monetize it better.

“We are not currently in any discussions or considering a spin-off of ESPN. By the way, this happened in my absence, and I understand that after a thorough investigation, the company concluded that this was not what the company intended to do,” Iger said.

Can’t believe that didn’t stop the questions on ESPN. One analyst even wondered when Iger might want to pull ESPN out of linear television entirely and focus solely on streaming instead. It’s just too early.

“If you’re asking me if change is inevitable, the answer is yes, but I’m not going to grasp when it might happen, because we have to do it at a time when it really makes sense, and we’re not there yet” – He told.

Pandora in California

Since 2017, guests at Disney World in Florida have been able to visit James Cameron’s luscious world of Pandora in the themed area of ​​the Animal Kingdom theme park. Disneyland parkgoers in Anaheim, California weren’t so lucky, but that’s about to change as Iger announced the “Avatar Experience” during the earnings call. It’s unclear if this experience will include the two existing Animal Kingdom “Avatar” rides — “Flight of Passage” and “Na’vi River Journey” — but it’s pretty important that the Tulkun space whales from the current box office smash it the movie “The Way of Water”. to appear. And hopefully the road to Pandora won’t break the bank either, as Iger spoke on the call that the company still plans to make the parks more affordable for consumers.

“Obviously, some of our pricing initiatives alienated consumers,” Iger said, referring to some recent moves from the Chapek era that made the parks “not seem as accessible or affordable as they should have been. “

Dividends are back!

When it cut $5.5 billion in costs, it allows it to pass some of the savings on to the investor. Iger announced on Wednesday that he had asked the board to restore the dividend by the end of the calendar year, which Disney had not done before Covid. Disney initially said those dividends would be “modest” and a fraction of what they were before Covid, when they paid investors $0.88 per share semi-annually, but it is expected to increase. Investors should see the dollar signs regardless, and this could be another tool to shut down activist investor Nelson Peltz. Speaking of who…

NBCU Photo Bank/NBCUniversal via Getty Images

5 things we didn’t learn

Peltz Who?

Trian Management CEO and activist investor Nelson Peltz has made a stink about getting on Disney’s board, and the board has made it clear in the past few months that they don’t want to deal with him, meaning a proxy fight is coming soon. However, Peltz’s name (or his son, who is running as his replacement) never came up during the search call, and Iger made only brief remarks about his successor, pointing to Mark Parker, who is the search committee chairman.

DeSantis and State of Florida v. Disney World

One of the biggest Disney stories since last year has been Florida Gov. Ron DeSantis’ attempt to strip Disney World of its municipal status, in petty retaliation for former CEO Bob Chapek’s 180-year-old state Republicans’ controversial “No Say Gay” bill. That saga took a new turn Monday when Florida lawmakers introduced a new bill expected to pass in a special legislative session that ends next week that would authorize DeSantis to appoint members to the Disney World Special Taxing District Board of Supervisors. , Reedy Creek. That bill didn’t necessarily come as a shock, as the DeSantis board members’ appointments were a compromise to resolve a dispute between Florida and Disney in December. And while that’s not optimal for Disney, the bill doesn’t eliminate their municipal status entirely, which could make the situation less urgent for the company.

Despite all this, Iger was the mother of the situation. So Disney’s only real response was that resort president Jeff Vahl recently stated that the company would “monitoring” the legislation.

Disney+’s long-term subscriber goals

At least one analyst pushed for Iger to provide an updated number or reassess his predecessor’s guidance on long-term Disney+ subscriber growth. Chapek made a strong recommendation that Disney+ could reach 230-260 million subscribers by 2024 (it’s at 161 million based on today’s earnings), so there was room for Iger to lower that number. He didn’t bite, he just bit.

“In our drive to get subscribers, I think we’ve been a little too aggressive in our promotion and we’re going to look at that,” he said. “We cannot achieve profitability and turn this into a growth business without growing subordinates. So while we’re taking the sub-guidelines off the table, we’re still looking to grow subscribers, we just want to produce quality subscribers that are loyal and we’re able to price those subscribers effectively.”

But Iger and McCarthy didn’t change their guidance, saying the DTC business will be profitable by 2024, so that’s something.

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A decision on Hulu can wait

Iger knows that Disney has to make a decision about Hulu this year, right? That’s at least a $27.5 billion decision for Disney if they want to buy out the remaining third of the Comcast-owned streamer or decide to sell the two-thirds that Disney owns. This is another great way to bring in cash for a company that is now laser-focused on savings. But even though the DTC business is still losing $1.05 billion (Hulu added 800,000 subscribers this quarter), it never came up. Perhaps Iger wants to take some time to see how Hulu does under the new structure before setting anything in stone.

Yes, licensing is possible, but we don’t know how much

On Monday, Bloomberg reported that Disney executives discussed the possibility of ramping up their licensing business to sell rights to film and TV properties to rival media outlets. This strategy would be a complete departure from Disney+’s position since its launch, which is to keep content under the Mouse House. According to the report, Iger will share more details about the authorization during the call, which he did — sort of.

In response to a question on the call, Iger said licensing would potentially be part of Disney’s profit strategy, but he hedged against providing further details, saying the company “hasn’t really been there” in disclosing what the Disney. will be an authorization approach. As such, it’s unclear how aggressively Disney may pursue licensing, which companies it may begin licensing to, and when, if at all, it may ramp up licensing.

“We have opportunities to use the great talent that we have to create for third parties, and we’re going to look at that very seriously,” Iger said on the call. “I actually think this is a good opportunity to create a growth business for the company, but it’s too early to predict what that will be.”

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