WEBVTT - Disney CFO Hugh Johnston Talks Earnings

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>We'll begin with our top story, Disney reporting fiscal second

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<v Speaker 2>quarter profit that beat estimates thanks to sharply narrower losses

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<v Speaker 2>in its streaming TV business and higher ticket prices at

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<v Speaker 2>theme parks. And please to say that joining us now

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<v Speaker 2>for more is the Disney CFO Hugh Johnston here wonder

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<v Speaker 2>for to catch up with you once again, sir, I

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<v Speaker 2>want to begin if we may talking about the theme

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<v Speaker 2>park business and the consumer price tolerance that you see.

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<v Speaker 2>Do you still have that pricing power at a time

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<v Speaker 2>where many companies are reporting that yes there is upper

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<v Speaker 2>rent stability, but maybe some low rent fragility around the consumer.

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<v Speaker 3>Yeah, good morning, great to be with you all. Yeah,

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<v Speaker 3>I actually believe we do. If we sort of zoom

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<v Speaker 3>out a little bit. The quarter was really a strong

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<v Speaker 3>one for us, seventeen percent of I growth, thirty percent

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<v Speaker 3>EPs growth.

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<v Speaker 4>That's what led us to raise guidance.

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<v Speaker 3>To twenty five percent EPs growth for the full year,

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<v Speaker 3>which is obviously quite strong.

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<v Speaker 4>Two big stories I think here.

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<v Speaker 3>Number one, you were just talking about experiences business was

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<v Speaker 3>up ten percent on a revenue basis, twelve percent on

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<v Speaker 3>an AI basis, and the parks business was actually up

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<v Speaker 3>thirteen percent on OI.

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<v Speaker 4>So we do feel good about that.

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<v Speaker 3>Obviously, I watch other stocks report and have seen that

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<v Speaker 3>the value consumer is really struggling a bit and making

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<v Speaker 3>choices right now, we're not really seeing as much of

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<v Speaker 3>that in.

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<v Speaker 4>Our portfolio of products.

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<v Speaker 3>The other positive for us is obviously the streaming service.

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<v Speaker 3>Last year, we lost about six hundred million dollars. This

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<v Speaker 3>year we're about break even and we saw twelve percent

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<v Speaker 3>revenue growth, So we're encouraged by the progress we've made

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<v Speaker 3>in that business in a relatively short period of time.

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<v Speaker 1>Hugh, you said that you're not seeing that kind of

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<v Speaker 1>price sensitivity. How much could you increase prices in from here?

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<v Speaker 4>It's a great question.

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<v Speaker 3>We took prices up a little bit in the beginning

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<v Speaker 3>of this year and didn't really see much of an impact.

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<v Speaker 3>So as to what the future brings, we're obviously very

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<v Speaker 3>judicious with the way that we price. We want to

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<v Speaker 3>provide access to as many guests as we possibly can,

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<v Speaker 3>but we do believe that the great experiences we provide

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<v Speaker 3>people are willing to pay for.

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<v Speaker 2>Here, let's talk about the streaming business just a little

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<v Speaker 2>bit more and more specifically, if we can Hulu. I

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<v Speaker 2>want to get into Hulu and the future of that business.

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<v Speaker 2>Can we just start with something like the likes of

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<v Speaker 2>Taranaka and Showgun on Hulu. How impressive that content actually was.

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<v Speaker 2>When you have something like that a big hit, how

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<v Speaker 2>does it translate in some gains for the company. How

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<v Speaker 2>does it fall to the bottom line?

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<v Speaker 4>Yeah, it really does create two things.

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<v Speaker 3>Number One, it brings new subscribers in right, we call

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<v Speaker 3>them for subscribers. Those types of jows do pull people

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<v Speaker 3>into the service, and then once they're into the service,

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<v Speaker 3>they realize just the great amount of content that's out there,

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<v Speaker 3>so that those shows also tend to increase stickiness over time.

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<v Speaker 3>So from both perspectives, they're truly additive. And the other

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<v Speaker 3>piece of it that's terrific I think is it really

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<v Speaker 3>does a great well with the linear business as well.

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<v Speaker 3>So you know, we use these different windows to choose

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<v Speaker 3>when to show things, whether it's on FX or whether

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<v Speaker 3>it's on ABC, and then into the streaming service, so

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<v Speaker 3>we were actually getting quite good at reaching different audiences,

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<v Speaker 3>streaming being a bit of a younger audience, the linear

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<v Speaker 3>business being a bit of a more mature audience. It

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<v Speaker 3>gives us the ability to reach the most people, which

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<v Speaker 3>is obviously terrific from an advertising and a subscriber process.

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<v Speaker 2>That sets up brilliant the conversation about the future of Hulu, Hugh,

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<v Speaker 2>So let's talk about it. A report yesterday from Reuter's

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<v Speaker 2>that JP Morgan has valued the company for you close

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<v Speaker 2>to twenty seven point five billion Morgan Stanley value when

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<v Speaker 2>HULI for Comcast at more than forty billion? Is that

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<v Speaker 2>an accurate assessment of where things are? They also reported

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<v Speaker 2>that we're looking for an independent valuation now to try

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<v Speaker 2>and close the gap. Could you just update us and

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<v Speaker 2>tell us if that's an accurate representation of the current

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<v Speaker 2>state of affairs.

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<v Speaker 4>Yeah.

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<v Speaker 3>So we have a well defined process in terms of

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<v Speaker 3>how this is going to play its way out. Beyond that,

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<v Speaker 3>I'm not going to comment on that right now. One

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<v Speaker 3>of the disciplines I have is I talk about M

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<v Speaker 3>and A when it's done, not before it's done.

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<v Speaker 2>Too early to talk about a timeline here a little

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<v Speaker 2>bit too early.

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<v Speaker 4>So here, let's talk.

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<v Speaker 2>About going forward from here where the big opportunities are

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<v Speaker 2>for the stream and business.

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<v Speaker 4>OK.

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<v Speaker 3>I think there are a multitude of opportunities. Number One

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<v Speaker 3>great programming, and that's an advantage that we have in

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<v Speaker 3>our Disney portfolio because we create so much of our

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<v Speaker 3>own IP. Number two is driving engagement, and bundling clearly

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<v Speaker 3>does that. Whether it's with sports, whether it's down in

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<v Speaker 3>Latin America, we're actually putting sports, General Entertainment and Disney

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<v Speaker 3>Plus together, and or the tile that we added, the

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<v Speaker 3>Hulu tile on Disney Plus, so that bundling is clearly

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<v Speaker 3>an opportunity. Third is password sharing. That's an opportunity for us.

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<v Speaker 3>We think it's pretty substantial and it's going to drive growth.

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<v Speaker 3>Fourth is distribution cost. We do think by going direct

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<v Speaker 3>to consumer we can actually both build a stronger relationship

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<v Speaker 3>with the consumer and also reduce our costs. And then

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<v Speaker 3>fifth is technology. Clearly an opportunity in terms of recommendation engines.

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<v Speaker 3>As we put all of that together, we're pretty well

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<v Speaker 3>convinced that this is going to be a great growth

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<v Speaker 3>business for the Disney Company for a long long time.

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<v Speaker 5>Hugh, you mentioned a number of things there, including password sharing.

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<v Speaker 5>How much do you expect all of those initiatives you

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<v Speaker 5>just mentioned to save money? What's the cost benefit of

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<v Speaker 5>all of that?

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<v Speaker 3>Yeah, I mean things like password sharing obviously drive additional

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<v Speaker 3>revenue growth. Things like distribution costs do save money for you.

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<v Speaker 3>In addition to that, things like recommendation engines and direct

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<v Speaker 3>to consumer marketing tends to reduce churn, which allows you

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<v Speaker 3>to reduce marketing costs. So there really is some synergy

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<v Speaker 3>between the revenue benefits and the cost benefits. But overall,

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<v Speaker 3>we're looking to make this into a great business, not

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<v Speaker 3>just a growth business, but a great margin business for

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<v Speaker 3>the company as well, Hugh.

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<v Speaker 1>Over the past six months we've been talking about the

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<v Speaker 1>cost cutting operations in Disney. Have we finished some of

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<v Speaker 1>the shrinking, have we finished the pairing back, and are

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<v Speaker 1>you back on some sort of growth trajectory.

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<v Speaker 3>We are definitely back a growth trajectory. That said, we're

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<v Speaker 3>always going to be looking hard at our cost structure,

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<v Speaker 3>in particular looking to reduce costs where perhaps they add

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<v Speaker 3>less value than they used to, and redeploy some of

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<v Speaker 3>that money back into the business so that we can

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<v Speaker 3>actually grow the balance of the business. So I think

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<v Speaker 3>that's a never ending exercise of looking for ways to

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<v Speaker 3>be more efficient as a company so that you can

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<v Speaker 3>invest in your future.

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<v Speaker 1>When you talk about growing, where is that growth focused

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<v Speaker 1>on geographically. We know that in the US you've got

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<v Speaker 1>a very strong parks business. In Europe there also is

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<v Speaker 1>a parks presence. But in Asia, in particular in China,

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<v Speaker 1>that has been a growth area. Is it still How

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<v Speaker 1>much can that be a bright spot at a time

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<v Speaker 1>of increasing geopolitical tensions?

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<v Speaker 4>Yeah?

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<v Speaker 3>I do think not just China, but all of Asia

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<v Speaker 3>represent growth opportunities for US, both in terms of the

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<v Speaker 3>streaming service and select markets as well as in terms

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<v Speaker 3>of the parks and cruises business. So we do see

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<v Speaker 3>good growth opportunities there. Europe and Latin America continue to

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<v Speaker 3>be good growth opportunities, and make no mistake, North America

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<v Speaker 3>not done growing yet. We still think there are terrific

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<v Speaker 3>opportunities here for us right at home.

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<v Speaker 5>When it comes to Asia Pacific, is it domestic demand

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<v Speaker 5>within those countries, specifically China, or is it tourists in

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<v Speaker 5>the region.

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<v Speaker 3>Combination of both. I wouldn't tie it to one or

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<v Speaker 3>the other. I think it's a combination of both.

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<v Speaker 5>And when you look at China, to Lisa's point, you

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<v Speaker 5>know we're going into a very heated political election coming

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<v Speaker 5>up in November, very hot rhetoric regarding China. Is it

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<v Speaker 5>becoming more challenging to deal with authorities in Beijing and

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<v Speaker 5>business on the ground given the increased geopolitical tensions.

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<v Speaker 4>It has not been for us.

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<v Speaker 3>You know, one of the benefits of what we do

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<v Speaker 3>for a living is, you know, we make people smile.

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<v Speaker 3>We bring them happiness. Right, we bring them the most

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<v Speaker 3>magical place on earth. Candidly, the government's investing in infrastructure

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<v Speaker 3>to make it easier for guests to get to and

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<v Speaker 3>from the park. We're continuing to invest in that park

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<v Speaker 3>in order to drive growth.

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<v Speaker 4>It's doing better now than it ever has.

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<v Speaker 3>So we're the fortunate beneficiaries of bringing people joy in

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<v Speaker 3>a world that needs it.

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<v Speaker 2>Here, we've got to talk about the NBA deal as well.

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<v Speaker 2>Can you talk to us about that? And it is

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<v Speaker 2>going to be much higher. How do you make money

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<v Speaker 2>from something like that? I just want to understand the

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<v Speaker 2>numbers business of all of this.

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<v Speaker 3>Yeah, So the NBA, we're in the middle of discussions

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<v Speaker 3>right now. So again I don't comment on specific deals

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<v Speaker 3>until they're done. What I would tell you is two things.

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<v Speaker 3>Number One, we've had a long, long, productive relationship with

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<v Speaker 3>the NBA. We've benefitted from it, and clear the NBA

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<v Speaker 3>has benefited as well.

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<v Speaker 4>I expect that that'll continue.

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<v Speaker 3>Number Two, We'll always continue to look at the balance

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<v Speaker 3>of our rights portfolio, and as things come up, we'll

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<v Speaker 3>decide whether we want to continue with them in the

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<v Speaker 3>current form, reduce them, or even in some cases, perhaps

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<v Speaker 3>not continue to carry them anymore. So I think we'll

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<v Speaker 3>balance the portfolio rights and we'll get the things that

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<v Speaker 3>we need as the thirty five percent market shareholder in

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<v Speaker 3>the sports business to continue to make ESPN the true

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<v Speaker 3>leader in sports.

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<v Speaker 2>You said you won't comment on deals until they're done,

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<v Speaker 2>but maybe you'll comment on other people's deals. Can we

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<v Speaker 2>do that, Sony Paramount? How would that impact Hollywood? Is

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<v Speaker 2>that something you'd oppose?

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<v Speaker 4>You know, It's funny. I don't have a real comment

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<v Speaker 4>on that one.

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<v Speaker 2>I didn't expect you to, but we have to ask you.

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<v Speaker 2>You've got to leave it there. It's going to catch up.

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<v Speaker 2>Sir Hugh Johnson. There the Disney CFO on the latest earnings.