Disney's 4QFY24 earnings call: Experience department targets profit growth of 6-8% in 2025. ESPN channel, Disney+, coming soon.

Recently, Disney (DIS.US) held its 4QFY24 earnings call. The company management stated that their goal for the growth of the Parks segment operating profit in 2025 is 6-8%. The company experienced negative impacts in 1QFY25 due to two hurricanes and upfront costs for the launch of "Treasure Island"; therefore, they anticipate negative growth in the first quarter. However, they expect to turn to positive growth in the second quarter and further growth throughout the year. The driving factors cited by the company include the upcoming launch of "Treasure Island" and the gradual increase in consumers in 2025. Additionally, the company remains optimistic about subscription trends for this year and the second half of next year. At the end of this quarter, the company has 174 million core Disney+ and Hulu subscription users. Over the past five years, Disney has turned Disney+ into a unique streaming platform with over 120 million core users. From a mergers perspective, when the company initially announced the acquisition of 21st Century Fox at the beginning of 2017, they highlighted their intention to do so from a streaming standpoint. The company recognized the need for a substantial amount of content and distribution in an environment where streaming was expected to surge. Furthermore, with the acquisition of Hulu and its integration with Disney+, the company has established a strong distribution method, enabling them to reach around 174 million global users with a positive outlook for the future of streaming. In terms of distribution and content, the company does not currently require additional assets to grow in the streaming world. With Hulu joining Disney+, the company is able to provide high-quality ultimate content to each user, from branded and curated entertainment programs to news and live events. The company has invested in making the profitable streaming business a significant growth driver. On December 4th, the company will launch ESPN channels on Disney+, further enhancing the streaming service. With access to many of the most popular sports programs over the next few years, Disney has become a leader in the sports program portfolio. As the company prepares to launch ESPN's flagship DTC product in the early autumn of 2025, the integrated streaming experience brings the company one step closer to its goal of providing a complete sports program through Disney+ in the U.S. Q&A Session Q: In many aspects, the launch of ESPN's flagship program is the final major strategic shift in the company's content assets towards streaming. What does the company believe this product will bring to sports fans and ESPN enthusiasts? How will this product drive their customer experience forward? Can you explain why the Parks segment operating profit is expected to accelerate in 2025? Robert Iger, CEO A: In addition to basic services such as live sports, studio programs, and commentary, ESPN's flagship program will offer many other features, such as fully integrated gambling functionalities. The emphasis is that with technology applied to sports presentation, almost anything is possible, such as AI-driven personalized sports centers and customized sports experiences. Therefore, the company is optimistic about the strategic shift. Live sports are highly appealing to advertisers, especially in sports broadcasting. This product not only provides viewership but also value for viewers and advertisers. Thus, the product combines highly customized, highly mobile, and fully integrated features, making it the best product consumers have seen in the sports arena. Hugh Johnston, CFO A: The reason the company has set a growth target of 6-8% for the Parks segment operating profit in 2025 is due to the negative impacts in 1QFY25 from two hurricanes and upfront costs for the launch of "Treasure Island." Therefore, they expect negative growth in the first quarter, but as time progresses, they anticipate turning to positive growth in the second quarter and further growth throughout the year. The driving factors cited by the company include the upcoming launch of "Treasure Island" and the expected gradual increase in consumers in 2025. Additionally, the company remains optimistic about subscription trends for this year and the second half of next year. Q: Can you provide an outlook on the comprehensive growth of the company's advertising business in the coming years? Will capital expenditures decrease slightly next year? Robert Iger, CEO A: Yesterday, I interviewed Rita Ferro, who is responsible for global advertising sales at the company, to understand the latest market dynamics. Cable television advertising is currently very strong, partly due to live sports. With cable television providing a different audience compared to streaming, the company's integrated approach not only from a programming or technology standpoint but also from an advertising perspective gains some business leverage, allowing them to offer a broader, more in-depth advertising service to advertisers. Therefore, the combination of both is very effective for the company, and they are producing content in an integrated way. Therefore, viewers will see ESPN producing NFL programs in conjunction with ABC on Monday nights, a multitude of college football games, and an extensive NBA broadcast on ABC after the season begins. Additionally, the company has had a successful partnership with Alphabet Inc. Class C in stock sales, with the company's technology enabling advertisers to buy differentiated audiences through trading platform mechanisms. Hugh Johnston, CFO A: Advertising revenue accounted for 3% in 2024, and the company expects advertising revenue to reach or exceed that level in 2025 because the advertising technology they have built or the ability to effectively target consumers is a competitive advantage and proprietary technology. Therefore, the company is optimistic about its ability to gain a share of the advertising market based on this foundation. Q: The company has hired Adam Smith from YouTube, what will be Adam Smith's focus? How will this affect Disney+ or other streaming products in the future? Is the company confident in achieving a double-digit strong profit margin for DTC in 2026 because it does not include Hulu? (End of translation)Could I please ask for your help in brainstorming the future of this product?Iger, CEO A: Adam Smith has made progress in improving the technology of all the company's streaming media businesses. One of the top priorities is the flagship product, and another priority is the launch of ESPN programs on Disney+ on December 4th. In addition, adding a recommendation engine feature on the homepage can enhance user engagement through personalized and customized ways. Furthermore, the company's goal is to achieve password sharing. This week, the company launched a sharing initiative in Latin America, and currently the company is conducting password sharing or anti-password sharing activities in over 130 countries. The company is unifying its technological capabilities, including media services across Disney+ and Hulu, and the entire advertising level. These measures are aimed not only at creating a better customer experience, but also at increasing engagement and reducing customer churn. Hugh Johnston, CFO A: Regarding confidence in achieving double-digit profit margins: 1) The company hopes to continue growing its user base. Given that DTC business shares many characteristics with software business, such as relatively low incremental costs, the profit margin on incremental users is very high. 2) The company will continue to offer value pricing to consumers. Much of the growth the company is achieving now comes from the outstanding content produced by its film and television studios, this proprietary content is leading to potential price increases over time as the company sees fit. 3) Adam has many priority items in product updates and enhancements that will increase engagement and reduce churn, including improvements to the recommendation engine, which will increase the monetization of the advertising business. 4) International business will also be a significant opportunity. Q: How does the company view Guidance, as it relates to some conservative thinking within the company. Broadly, the company expects an acceleration in earnings per share growth from the 2025 fiscal year to the 2026 fiscal year, is this only considering flagship product launches and factors like hurricanes? Regarding the flagship product, how does the company view the cost of the first year launch and ARPU? When does the company think this product will break even? Robert Iger, CEO A: In terms of the thought process behind the guidance, 1) DTC has seen significant improvement, largely due to the company investing heavily in building the product; 2) the company is considering and will continue to make significant investments in parks and cruises, and even consumer products. The company not only wants to provide investors with operating results, but also expectations for the return on these investments, which are long-term in nature and the company is confident in delivering. Regarding the flagship product, the company believes it is a bit early to discuss ARPU for the flagship product right now, as there will be an investment made in 2025, which is already reflected in the guidance, and this product will bring value to us in 2026, the company hopes to recover that investment relatively quickly by 2026. Hugh Johnston, CFO A: The company also has high visibility in terms of content. When the company is successful on one feature film, or even anticipates success, basically the consumption of previous series of movies increases. Looking ahead to 2025, the films will end with "Zootopia" and "Avatar", in 2026 the company will have "Star Wars", "The Mandalorian", "The Avengers", and live-action version of "The Little Mermaid", among other films. Therefore, the company believes 1) in making films that benefit the company both in quality and commercially; 2) the company realizes that these films will significantly boost the performance of its streaming media. Q: Firstly, similar to Comcast, it seems there is the intention to divest cable television from the company, the company has considered similar action in the past, perhaps in the realm of cable television entertainment. As part of industry actions, will the company reconsider this or will changes in government alter the company's view on acquisition opportunities? Secondly, could the company share its latest views on the impact of Epic Universe's launch. How does the company expect its early summer launch to accelerate what happens in mid-year and the experience business? Robert Iger, CEO A: In terms of mergers, from the beginning of 2017 to the end of the year, the company initially announced the acquisition of 20th Century Fox with a focus on streaming media. The company mentioned a booming environment for streaming and recognized the need for a large amount of content and distribution. Additionally, the company acquired Hulu, which, combined with Disney+, provides a good distribution method for the company, enabling approximately 174 million global users and allowing a very optimistic view of the future of streaming. From both a distribution and content perspective, the company currently does not need more assets to grow in the streaming media world. Hugh Johnston, CFO A: Regarding asset divestitures, the first thing I did after taking on the role of CFO at PepsiCo, Inc. was to study whether there were opportunities to create value through divesting assets. Frankly, I have not seen such opportunities at the Walt Disney Company, I spent a lot of time initially studying from a financial perspective, and two things need to be considered: 1) what price can be obtained? 2) what are the operational frictions costs of divesting these assets? After analysis, the Walt Disney Company does not have such opportunities. Regarding Epic Universe, the company has indeed incorporated it into its expectations for the experience outlook. Early subscription numbers for next summer are actually optimistic. The company has also studied the history of other theme parks and other parks opening in Florida. Overall, this is advantageous for the company, and it is detailed in the guidance provided by the company. Q: Firstly, in terms of content production, the company has always focused on quality rather than quantity. How does the company consider the pace of content growth in 2025 and beyond? And how about future spending growth? Secondly, for the experience department, when thinking about long-term investment returns, how much is driven by real capacity expansion and accommodating more visitors, and how much is driven by the company having these fantastic new attractions that enhance the pricing power of the parks? Robert Iger, CEO A: From a merger perspective, in early 2017 until the end of the year, when the company first announced the acquisition of 20th Century Fox, it specifically mentioned doing so from a streaming media perspective. The company mentioned a booming environment for streaming media, and realized the need for a large amount of content and distribution. The acquisition of Hulu, coupled with Disney+, has provided a good distribution method for the company, enabling around 174 million global users and providing a very optimistic view of the future of streaming. From both a distribution and content perspective, the company currently does not need more assets to grow in the streaming media world.Iger, CEO - Iger, Chief Executive Officer Disney+Disney+2023 Among the topics discussed are 1) the Paris Olympics and 2) some softness in consumer demand in Shanghai. However, the company anticipates that this is only temporary and not a cause for concern in the long term. As for international subscriptions, there hasn't been much change. There has been good growth in the international user base."Bonjour, comment a va?" "Hello, how are you?"