Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: We'll begin with our top story, Disney reporting fiscal second
Speaker 2: quarter profit that beat estimates thanks to sharply narrower losses
Speaker 2: in its streaming TV business and higher ticket prices at
Speaker 2: theme parks. And please to say that joining us now
Speaker 2: for more is the Disney CFO Hugh Johnston here wonder
Speaker 2: for to catch up with you once again, sir, I
Speaker 2: want to begin if we may talking about the theme
Speaker 2: park business and the consumer price tolerance that you see.
Speaker 2: Do you still have that pricing power at a time
Speaker 2: where many companies are reporting that yes there is upper
Speaker 2: rent stability, but maybe some low rent fragility around the consumer.
Speaker 3: Yeah, good morning, great to be with you all. Yeah,
Speaker 3: I actually believe we do. If we sort of zoom
Speaker 3: out a little bit. The quarter was really a strong
Speaker 3: one for us, seventeen percent of I growth, thirty percent
Speaker 3: EPs growth.
Speaker 4: That's what led us to raise guidance.
Speaker 3: To twenty five percent EPs growth for the full year,
Speaker 3: which is obviously quite strong.
Speaker 4: Two big stories I think here.
Speaker 3: Number one, you were just talking about experiences business was
Speaker 3: up ten percent on a revenue basis, twelve percent on
Speaker 3: an AI basis, and the parks business was actually up
Speaker 3: thirteen percent on OI.
Speaker 4: So we do feel good about that.
Speaker 3: Obviously, I watch other stocks report and have seen that
Speaker 3: the value consumer is really struggling a bit and making
Speaker 3: choices right now, we're not really seeing as much of
Speaker 3: that in.
Speaker 4: Our portfolio of products.
Speaker 3: The other positive for us is obviously the streaming service.
Speaker 3: Last year, we lost about six hundred million dollars. This
Speaker 3: year we're about break even and we saw twelve percent
Speaker 3: revenue growth, So we're encouraged by the progress we've made
Speaker 3: in that business in a relatively short period of time.
Speaker 1: Hugh, you said that you're not seeing that kind of
Speaker 1: price sensitivity. How much could you increase prices in from here?
Speaker 4: It's a great question.
Speaker 3: We took prices up a little bit in the beginning
Speaker 3: of this year and didn't really see much of an impact.
Speaker 3: So as to what the future brings, we're obviously very
Speaker 3: judicious with the way that we price. We want to
Speaker 3: provide access to as many guests as we possibly can,
Speaker 3: but we do believe that the great experiences we provide
Speaker 3: people are willing to pay for.
Speaker 2: Here, let's talk about the streaming business just a little
Speaker 2: bit more and more specifically, if we can Hulu. I
Speaker 2: want to get into Hulu and the future of that business.
Speaker 2: Can we just start with something like the likes of
Speaker 2: Taranaka and Showgun on Hulu. How impressive that content actually was.
Speaker 2: When you have something like that a big hit, how
Speaker 2: does it translate in some gains for the company. How
Speaker 2: does it fall to the bottom line?
Speaker 4: Yeah, it really does create two things.
Speaker 3: Number One, it brings new subscribers in right, we call
Speaker 3: them for subscribers. Those types of jows do pull people
Speaker 3: into the service, and then once they're into the service,
Speaker 3: they realize just the great amount of content that's out there,
Speaker 3: so that those shows also tend to increase stickiness over time.
Speaker 3: So from both perspectives, they're truly additive. And the other
Speaker 3: piece of it that's terrific I think is it really
Speaker 3: does a great well with the linear business as well.
Speaker 3: So you know, we use these different windows to choose
Speaker 3: when to show things, whether it's on FX or whether
Speaker 3: it's on ABC, and then into the streaming service, so
Speaker 3: we were actually getting quite good at reaching different audiences,
Speaker 3: streaming being a bit of a younger audience, the linear
Speaker 3: business being a bit of a more mature audience. It
Speaker 3: gives us the ability to reach the most people, which
Speaker 3: is obviously terrific from an advertising and a subscriber process.
Speaker 2: That sets up brilliant the conversation about the future of Hulu, Hugh,
Speaker 2: So let's talk about it. A report yesterday from Reuter's
Speaker 2: that JP Morgan has valued the company for you close
Speaker 2: to twenty seven point five billion Morgan Stanley value when
Speaker 2: HULI for Comcast at more than forty billion? Is that
Speaker 2: an accurate assessment of where things are? They also reported
Speaker 2: that we're looking for an independent valuation now to try
Speaker 2: and close the gap. Could you just update us and
Speaker 2: tell us if that's an accurate representation of the current
Speaker 2: state of affairs.
Speaker 4: Yeah.
Speaker 3: So we have a well defined process in terms of
Speaker 3: how this is going to play its way out. Beyond that,
Speaker 3: I'm not going to comment on that right now. One
Speaker 3: of the disciplines I have is I talk about M
Speaker 3: and A when it's done, not before it's done.
Speaker 2: Too early to talk about a timeline here a little
Speaker 2: bit too early.
Speaker 4: So here, let's talk.
Speaker 2: About going forward from here where the big opportunities are
Speaker 2: for the stream and business.
Speaker 4: OK.
Speaker 3: I think there are a multitude of opportunities. Number One
Speaker 3: great programming, and that's an advantage that we have in
Speaker 3: our Disney portfolio because we create so much of our
Speaker 3: own IP. Number two is driving engagement, and bundling clearly
Speaker 3: does that. Whether it's with sports, whether it's down in
Speaker 3: Latin America, we're actually putting sports, General Entertainment and Disney
Speaker 3: Plus together, and or the tile that we added, the
Speaker 3: Hulu tile on Disney Plus, so that bundling is clearly
Speaker 3: an opportunity. Third is password sharing. That's an opportunity for us.
Speaker 3: We think it's pretty substantial and it's going to drive growth.
Speaker 3: Fourth is distribution cost. We do think by going direct
Speaker 3: to consumer we can actually both build a stronger relationship
Speaker 3: with the consumer and also reduce our costs. And then
Speaker 3: fifth is technology. Clearly an opportunity in terms of recommendation engines.
Speaker 3: As we put all of that together, we're pretty well
Speaker 3: convinced that this is going to be a great growth
Speaker 3: business for the Disney Company for a long long time.
Speaker 5: Hugh, you mentioned a number of things there, including password sharing.
Speaker 5: How much do you expect all of those initiatives you
Speaker 5: just mentioned to save money? What's the cost benefit of
Speaker 5: all of that?
Speaker 3: Yeah, I mean things like password sharing obviously drive additional
Speaker 3: revenue growth. Things like distribution costs do save money for you.
Speaker 3: In addition to that, things like recommendation engines and direct
Speaker 3: to consumer marketing tends to reduce churn, which allows you
Speaker 3: to reduce marketing costs. So there really is some synergy
Speaker 3: between the revenue benefits and the cost benefits. But overall,
Speaker 3: we're looking to make this into a great business, not
Speaker 3: just a growth business, but a great margin business for
Speaker 3: the company as well, Hugh.
Speaker 1: Over the past six months we've been talking about the
Speaker 1: cost cutting operations in Disney. Have we finished some of
Speaker 1: the shrinking, have we finished the pairing back, and are
Speaker 1: you back on some sort of growth trajectory.
Speaker 3: We are definitely back a growth trajectory. That said, we're
Speaker 3: always going to be looking hard at our cost structure,
Speaker 3: in particular looking to reduce costs where perhaps they add
Speaker 3: less value than they used to, and redeploy some of
Speaker 3: that money back into the business so that we can
Speaker 3: actually grow the balance of the business. So I think
Speaker 3: that's a never ending exercise of looking for ways to
Speaker 3: be more efficient as a company so that you can
Speaker 3: invest in your future.
Speaker 1: When you talk about growing, where is that growth focused
Speaker 1: on geographically. We know that in the US you've got
Speaker 1: a very strong parks business. In Europe there also is
Speaker 1: a parks presence. But in Asia, in particular in China,
Speaker 1: that has been a growth area. Is it still How
Speaker 1: much can that be a bright spot at a time
Speaker 1: of increasing geopolitical tensions?
Speaker 4: Yeah?
Speaker 3: I do think not just China, but all of Asia
Speaker 3: represent growth opportunities for US, both in terms of the
Speaker 3: streaming service and select markets as well as in terms
Speaker 3: of the parks and cruises business. So we do see
Speaker 3: good growth opportunities there. Europe and Latin America continue to
Speaker 3: be good growth opportunities, and make no mistake, North America
Speaker 3: not done growing yet. We still think there are terrific
Speaker 3: opportunities here for us right at home.
Speaker 5: When it comes to Asia Pacific, is it domestic demand
Speaker 5: within those countries, specifically China, or is it tourists in
Speaker 5: the region.
Speaker 3: Combination of both. I wouldn't tie it to one or
Speaker 3: the other. I think it's a combination of both.
Speaker 5: And when you look at China, to Lisa's point, you
Speaker 5: know we're going into a very heated political election coming
Speaker 5: up in November, very hot rhetoric regarding China. Is it
Speaker 5: becoming more challenging to deal with authorities in Beijing and
Speaker 5: business on the ground given the increased geopolitical tensions.
Speaker 4: It has not been for us.
Speaker 3: You know, one of the benefits of what we do
Speaker 3: for a living is, you know, we make people smile.
Speaker 3: We bring them happiness. Right, we bring them the most
Speaker 3: magical place on earth. Candidly, the government's investing in infrastructure
Speaker 3: to make it easier for guests to get to and
Speaker 3: from the park. We're continuing to invest in that park
Speaker 3: in order to drive growth.
Speaker 4: It's doing better now than it ever has.
Speaker 3: So we're the fortunate beneficiaries of bringing people joy in
Speaker 3: a world that needs it.
Speaker 2: Here, we've got to talk about the NBA deal as well.
Speaker 2: Can you talk to us about that? And it is
Speaker 2: going to be much higher. How do you make money
Speaker 2: from something like that? I just want to understand the
Speaker 2: numbers business of all of this.
Speaker 3: Yeah, So the NBA, we're in the middle of discussions
Speaker 3: right now. So again I don't comment on specific deals
Speaker 3: until they're done. What I would tell you is two things.
Speaker 3: Number One, we've had a long, long, productive relationship with
Speaker 3: the NBA. We've benefitted from it, and clear the NBA
Speaker 3: has benefited as well.
Speaker 4: I expect that that'll continue.
Speaker 3: Number Two, We'll always continue to look at the balance
Speaker 3: of our rights portfolio, and as things come up, we'll
Speaker 3: decide whether we want to continue with them in the
Speaker 3: current form, reduce them, or even in some cases, perhaps
Speaker 3: not continue to carry them anymore. So I think we'll
Speaker 3: balance the portfolio rights and we'll get the things that
Speaker 3: we need as the thirty five percent market shareholder in
Speaker 3: the sports business to continue to make ESPN the true
Speaker 3: leader in sports.
Speaker 2: You said you won't comment on deals until they're done,
Speaker 2: but maybe you'll comment on other people's deals. Can we
Speaker 2: do that, Sony Paramount? How would that impact Hollywood? Is
Speaker 2: that something you'd oppose?
Speaker 4: You know, It's funny. I don't have a real comment
Speaker 4: on that one.
Speaker 2: I didn't expect you to, but we have to ask you.
Speaker 2: You've got to leave it there. It's going to catch up.
Speaker 2: Sir Hugh Johnson. There the Disney CFO on the latest earnings.