WEBVTT - Geetha Ranganathan on Disney Earnings (Audio)

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<v Speaker 1>All right, let's find out what's been going on at

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<v Speaker 1>Disney as it came out with sales and profit that

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<v Speaker 1>was below Wall Street expectations, joining us to look at

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<v Speaker 1>all this is gua Tech and Media as a Bloomberg

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<v Speaker 1>intelligence guita looking at what's happened in Disney. I mean

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<v Speaker 1>it's quite something. You add twelve million subscribers, which is

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<v Speaker 1>a big, big beat on the consensus, and he's still

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<v Speaker 1>coming below estimates. What happened here? Yeah, and that's it's

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<v Speaker 1>a really good, good question. I mean, um, what happened

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<v Speaker 1>was they came in light on profits, and they came

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<v Speaker 1>in light on profits both on the streaming side and

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<v Speaker 1>the streaming of course there are absolutely no profits, which

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<v Speaker 1>meant there were more losses than expected. So so far

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<v Speaker 1>we have seen four billion dollars in fiscal two losses.

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<v Speaker 1>And then on the theme park side as well, and

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<v Speaker 1>this was a little bit of a surprise. I think

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<v Speaker 1>to most investors. They came in about twenty short of

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<v Speaker 1>consensus in terms of you know, park profits. So I

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<v Speaker 1>think those two were like the big headline numbers that

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<v Speaker 1>is kind of causing this weakness and after hours normally

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<v Speaker 1>when we think about costs in streaming, we would be

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<v Speaker 1>thinking about access of content, but that's not a problem

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<v Speaker 1>for Disney has loads of content. So it's kind of

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<v Speaker 1>curious what is the where is the cost structure that's

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<v Speaker 1>so high when it isn't the content, so it is

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<v Speaker 1>the content too. They are spending uh really, they're they're

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<v Speaker 1>spending tons and tons of money for producing some of

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<v Speaker 1>these really big shows on the Disney Plus platform. Yes,

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<v Speaker 1>they have access to i P, but remember creating even

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<v Speaker 1>like one season of The Mandalorian or some of these

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<v Speaker 1>Marvel series, it costs of about twenty five million per episode.

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<v Speaker 1>So we're looking at, you know, ten billion dollars in

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<v Speaker 1>content costs for fiscal two. That's probably going to go

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<v Speaker 1>up the next year. So they are spending a lot

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<v Speaker 1>on content. But where they're really looking to get more

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<v Speaker 1>efficiencies going forward is really in the marketing spend. So

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<v Speaker 1>with you know, with them launching in so many different markets,

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<v Speaker 1>they obviously had to undertake very intensive marketing efforts, but

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<v Speaker 1>obviously all of that is going to come down pretty

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<v Speaker 1>pretty nicely going forward. So that's interesting because it means

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<v Speaker 1>that they need new content, not just the other content,

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<v Speaker 1>but are they also producing some content that is only

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<v Speaker 1>for the streaming, it's not for the theatrical and therefore,

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<v Speaker 1>you know, you really have to up the spending. Oh. Absolutely,

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<v Speaker 1>there is a lot of content that's exclusively for streaming.

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<v Speaker 1>Whether it's all of these Marvel TV shows, whether it's

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<v Speaker 1>you know the Mandalorian which is a Star Wars show, Um,

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<v Speaker 1>we had and or we have you know, she Hug,

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<v Speaker 1>all of these are created exclusively for the Disney Plus platform.

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<v Speaker 1>Um and so yes, they do have you know, just

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<v Speaker 1>that component. But of course, as you mentioned, they also

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<v Speaker 1>have you know, content that they are creating for a

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<v Speaker 1>theatrical worldwide theatrical releases, which then also again flows back

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<v Speaker 1>into the Disney Plus platform after about two months or so. Um,

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<v Speaker 1>you know at the box office. Well, tell me sounds

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<v Speaker 1>what happens that you know, we've got just on the

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<v Speaker 1>sports side of things that you know, we've got major headwinds. Indeed,

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<v Speaker 1>with all these different rights that they have to screen

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<v Speaker 1>sport in different jurisdictions. Uh, these cost a lot of

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<v Speaker 1>money and a lot of these are coming up for renew. Yeah,

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<v Speaker 1>that is a big, big, you know, pain point, not

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<v Speaker 1>just for Disney. I think it's it's for all of

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<v Speaker 1>you know, the media landscapes. So for Disney, Disney they

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<v Speaker 1>are the biggest sports rights holder right now. They pay

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<v Speaker 1>about nine billion dollars every year and that's really because

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<v Speaker 1>of ESPN and all of the marquee rights that ESPN holes. Um. Yes,

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<v Speaker 1>there is huge cost inflation. On average. We've seen at

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<v Speaker 1>least about you know, fifties sixty cost inflation every time

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<v Speaker 1>these rights come up for renewal. So that is something

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<v Speaker 1>that that Disney is definitely looking at down the road.

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<v Speaker 1>But what they have shown us so far is that,

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<v Speaker 1>you know, they are willing to exercise a lot of

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<v Speaker 1>discipline and forego rights if it doesn't make financial sense

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<v Speaker 1>to them. So they did that recently in India with

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<v Speaker 1>the I p L cricket streaming rights. Um that was

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<v Speaker 1>really a huge magnet for them in terms of subscriptions,

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<v Speaker 1>but it was very, very expensive, and so they decided

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<v Speaker 1>to let that go, and they said they're going to

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<v Speaker 1>do the same thing for new sports rights that kind

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<v Speaker 1>of come up. They're going to be very financially disciplined

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<v Speaker 1>as they take a look into those You mentioned the

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<v Speaker 1>parks were disappointing. Was a lot of that tied to

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<v Speaker 1>China because of lockdowns or whether it was it also

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<v Speaker 1>disappointing in North America. No, it was definitely some of

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<v Speaker 1>it was international. And with China, what they did mention

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<v Speaker 1>was that they have very very actually they have absolutely

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<v Speaker 1>no visibility into when Shanghai is going to be able

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<v Speaker 1>to reopen. So that is definitely going to take a

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<v Speaker 1>toll in terms of pranctability. But you know what was

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<v Speaker 1>disconcerting was that we saw some pretty weak results from

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<v Speaker 1>the US, you know, the domestic parks as well. Of course,

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<v Speaker 1>some of that was tied to Hurricane Ian, which affected

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<v Speaker 1>their Florida park. It resulted in about sixty five million

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<v Speaker 1>dollars of operating income impact. But they also talked about

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<v Speaker 1>higher costs and so one has to wonder about inflationary

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<v Speaker 1>pressures in their cost pace. Um, you know, they talked

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<v Speaker 1>about costs of new attractions. So all of that kind

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<v Speaker 1>of really took or or you know, exerted pressure on

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<v Speaker 1>on the bottom line for for the market segment. Excellent stuff, Guita,

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<v Speaker 1>thanks very much. We know that Disney is off the

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<v Speaker 1>worst levels and after hours of stock traded down about

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<v Speaker 1>almost eight percent, now down about six six point one percent.

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<v Speaker 1>Gita wrong and often is. Tech and media analysts at

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<v Speaker 1>Bloomberg Intelligence