WEBVTT - Disney CFO Hugh Johnston Talks Consumerism

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<v Speaker 1>Let's turn to the earnings. Disney delivering better than expected earnings,

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<v Speaker 1>the company streaming business posting a first ever profit, alongside

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<v Speaker 1>a sluggish performance from its theme parks. The sock is

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<v Speaker 1>down by about a third of one percent. So weigh

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<v Speaker 1>in on all of this, and please to say that

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<v Speaker 1>we can catch up with the Disney CFO Hugh Johnston.

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<v Speaker 1>She is wonderful to catch up with you, sir. As always,

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<v Speaker 1>we've got to start with the price increases. First of all.

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<v Speaker 1>It's on the minds of a lot of people I

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<v Speaker 1>can tell you around this table as well to you,

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<v Speaker 1>So let's get into it. We've heard from a lot

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<v Speaker 1>of companies that have talked about a lot of pricing

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<v Speaker 1>power and sliding sales. What have you seen in the

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<v Speaker 1>streaming business that gives you confidence you can hike prices

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<v Speaker 1>without that delivering increased churn?

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<v Speaker 2>Great? Well, good morning, Great to be with you all.

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<v Speaker 3>Obviously, terrific quarter for us, and you all have mentioned

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<v Speaker 3>the numbers a few times. The entertainment business is doing

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<v Speaker 3>exceptionally well right now. We had the top movie in May,

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<v Speaker 3>June and July, and the form of Planet of the

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<v Speaker 3>Apes inside out too, and then now Deadpool.

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<v Speaker 2>That's real value to the consumer.

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<v Speaker 3>And as we think forward to what's going to be

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<v Speaker 3>appearing on the streaming service, those three great motion pictures,

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<v Speaker 3>the ip that we've produced ourselves are going to be

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<v Speaker 3>on the streaming service, as well as an enormous number

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<v Speaker 3>of Emmy nominated TV shows including Avid, Elementary and The Bear,

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<v Speaker 3>Only Murders in the Building, and of course Showgun the

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<v Speaker 3>huge hit. And when you deliver that much value to consumers,

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<v Speaker 3>consumers are willing to pay a little bit more because, frankly,

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<v Speaker 3>they're getting so much back in terms of entertainment.

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<v Speaker 1>You've got to say, I'm with your Showgun was awesome.

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<v Speaker 1>I said that last time just to endorse it once again,

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<v Speaker 1>one of my favorites of the last twelve months. Clearly,

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<v Speaker 1>the streaming business is doing well, which opens the door

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<v Speaker 1>to high prices. You can't say the same thing about

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<v Speaker 1>the theme park business. Just what is going on there?

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<v Speaker 3>You Yeah, So one of the things to keep in

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<v Speaker 3>mind is the theme parks business.

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<v Speaker 2>We have actually grew in the quarter.

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<v Speaker 3>Revenue is up two percent, so we're not talking about

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<v Speaker 3>a business that's going negative in terms of growth. Earnings

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<v Speaker 3>were down a little bit because we had inflation, and

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<v Speaker 3>we're making some vestments back in the business. What we

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<v Speaker 3>see happening more than anything is the lower income consumers

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<v Speaker 3>are a little bit stressed and shaving a little bit

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<v Speaker 3>off of their time at the park, and then higher

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<v Speaker 3>income consumers are tending to travel overseas a little bit

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<v Speaker 3>more right now. But given the strength of the ip

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<v Speaker 3>that we have in the park, given the quality of

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<v Speaker 3>the experience, when the consumer is soft, it tends to

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<v Speaker 3>hit us late, It hits us a little bit less,

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<v Speaker 3>and we tend to recover. Really, so we really just

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<v Speaker 3>see this as a few quarters of slight perturbation in

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<v Speaker 3>the numbers. Frankly, I think we're going to be right

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<v Speaker 3>back as we get into the middle of next year.

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<v Speaker 4>One of the other complaints commonly hear with the consumer

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<v Speaker 4>is about bundles, not that they're not good, but that

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<v Speaker 4>there's just too many of them and it's given people fatigue.

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<v Speaker 4>Do you think there needs to be some consolidation. Do

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<v Speaker 4>you agree that there's just too many options right now?

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<v Speaker 3>Well, consumers do seem to appreciate having a limited number

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<v Speaker 3>of bundles. Now, what we've tried to do with our

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<v Speaker 3>own offering is offer the individual pieces or if people

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<v Speaker 3>want to go at a discount by bundling, we're happy

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<v Speaker 3>to do that.

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<v Speaker 2>So that said, I think you do see.

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<v Speaker 3>A trend where there's probably going to be a few

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<v Speaker 3>big competitors in the marketplace and streaming as we see

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<v Speaker 3>right now between Netflix, Amazon and ourselves, and then there'll

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<v Speaker 3>be some smaller competitors out there and they'll have to

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<v Speaker 3>decide how they're going to how they're going to run

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<v Speaker 3>their businesses.

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<v Speaker 4>Well, another huge draw of some of these sports rights,

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<v Speaker 4>and on this view, the NBA has had this very

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<v Speaker 4>odd bidding war where you've come out on skathe but

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<v Speaker 4>Warner Broods loses out. You have Amazon dot Com a

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<v Speaker 4>new entrance in there. You have all these streamers coming

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<v Speaker 4>in trying to get their hands on live sports events.

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<v Speaker 4>Do you think this is a healthy or unhealthy development

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<v Speaker 4>for the industry?

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<v Speaker 3>You know, generally speaking, what you see is sort of

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<v Speaker 3>the leagues are choosing to go with with the big

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<v Speaker 3>winners in all of this.

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<v Speaker 2>So they've obviously been with us.

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<v Speaker 3>ESPN the third quarter had forty nine percent market share

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<v Speaker 3>of sports viewing, which is obviously a terrific number. So

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<v Speaker 3>we have the a package with the NBA. We'll have

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<v Speaker 3>the NBA Finals for the next twelve years. Beyond that,

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<v Speaker 3>I'd be speculating is to get into what their decision

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<v Speaker 3>making process was, But I think in general they're quite

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<v Speaker 3>pleased with what we've been able to do for them,

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<v Speaker 3>and obviously we're happy with what they've been able to.

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<v Speaker 2>Do for us.

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<v Speaker 3>And you combine our NBA rights along with college football

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<v Speaker 3>along with the NFL, we've locked up sort of the

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<v Speaker 3>most important sports to us in terms of being big

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<v Speaker 3>and quite popular for an extended period of time.

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<v Speaker 2>So we feel good about where we sat.

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<v Speaker 1>Hugh.

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<v Speaker 5>I know there's a different price point whether or not

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<v Speaker 5>you want to be an individual that has to sit

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<v Speaker 5>through advertisements. Are you seeing an uptick of political ads

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<v Speaker 5>given the season we're in.

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<v Speaker 3>No, we really haven't seen much in that regard, so

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<v Speaker 3>I can't certainly say that.

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<v Speaker 2>So do you expect that to happen?

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<v Speaker 5>I mean everyone says after Labor Day, this is when

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<v Speaker 5>the campaigns are going to be in high gear up

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<v Speaker 5>until November. Are you expecting an uptick of political ads

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<v Speaker 5>on any of your streaming services?

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<v Speaker 3>Yeah, it's a great question. I couldn't tell you the

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<v Speaker 3>answer to that one. So what I can tell you

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<v Speaker 3>more broadly is the advertising market right now is incredibly healthy.

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<v Speaker 3>We grew advertising as a company eight percent in the quarter.

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<v Speaker 3>Our upfronts for next year were quite successful. The upfronts

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<v Speaker 3>were up five percent, and in addition to that, the

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<v Speaker 3>streaming service saw a twenty percent increase in advertising and

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<v Speaker 3>ESPN saw a seventeen percent increase. So generally speaking, the

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<v Speaker 3>ad market is healthy. The biggest place is that it's healthy.

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<v Speaker 3>Are consumer and then technology?

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<v Speaker 4>Are you a.

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<v Speaker 5>Concern that consumers right now potentially are going to shrug

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<v Speaker 5>off the price increases, because what we hear from a

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<v Speaker 5>lot of companies is that we do see consumers trading down.

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<v Speaker 5>Why do you think they're willing to pay for a

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<v Speaker 5>higher price point?

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<v Speaker 3>Well, I think the biggest reason is it's always important

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<v Speaker 3>to focus on this. The consumer receives value and what

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<v Speaker 3>they pay is price. And because we're delivering so much value,

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<v Speaker 3>I mean, really an enormous amount of value in terms

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<v Speaker 3>of the hits that I just met.

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<v Speaker 2>But then in addition to.

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<v Speaker 3>That, the combination of Disney plus Hulu and then we're

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<v Speaker 3>going to have an ESPN Tile and ultimately ESPN flagship

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<v Speaker 3>on our streaming service. That's a huge amount of value

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<v Speaker 3>for consumers, and as they're allocating their entertainment dollars, I

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<v Speaker 3>think they're going to view us as a great place

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<v Speaker 3>to put them.

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<v Speaker 1>So you mentioned, hurlu just how close are we to

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<v Speaker 1>an agreement with Comcast? Where are we?

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<v Speaker 3>Yeah, we're in the middle of an arbitration right now,

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<v Speaker 3>and as always I'm not going to comment on arbitration

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<v Speaker 3>outcomes and all of that. My guess is it's going

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<v Speaker 3>to take a little while, but ultimately we'll get to

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<v Speaker 3>a good place for the Walt.

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<v Speaker 1>Disney's got a decent idea of what the timeframe is here.

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<v Speaker 1>What a little while.

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<v Speaker 2>Is Yeah, probably talking a matter of a few quarters.

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<v Speaker 3>It'd be my guest, But that's just a guess.

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<v Speaker 2>So take it as that.

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<v Speaker 1>Well, just to guess is one on the theme parks

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<v Speaker 1>as well. I just want to know you down on

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<v Speaker 1>that too. You talked about the middle of next year

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<v Speaker 1>for the theme park business to be sort of bouncing

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<v Speaker 1>back to where it was. The guidness has sort of

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<v Speaker 1>shifted out here. What's the firm guidance coming from the

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<v Speaker 1>company now, Because I remember it was going close to

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<v Speaker 1>year end, we'd get that bounce what happened.

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<v Speaker 3>Yeah, the consumer came in a little bit softer, and

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<v Speaker 3>it was really the consumers that I mentioned earlier. The

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<v Speaker 3>lower income consumer is choosing to spend a little bit less,

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<v Speaker 3>and again the higher income consumer is doing more overseas

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<v Speaker 3>and outside the US. But again I'll remind you, we're

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<v Speaker 3>still growing in that business. So it's not a question

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<v Speaker 3>of the business has gotten way off track. It's just

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<v Speaker 3>a little bit softer than it was before because we're

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<v Speaker 3>seeing toward the end of the quarter, we saw a

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<v Speaker 3>few consumer trends.

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<v Speaker 1>You have quite a unique advantage point of course. You

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<v Speaker 1>I used to talk to you when you were over

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<v Speaker 1>at Pepsi during the pandemic, coming out of the pandemic,

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<v Speaker 1>and now with Disney, so you have a very very

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<v Speaker 1>unique view of where the consumer is. What gives you

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<v Speaker 1>the confidence just looking at your dashboard that it bounces back,

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<v Speaker 1>that it comes back. Where does that come from?

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<v Speaker 3>More than anything, I do believe there's resilience in the

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<v Speaker 3>US economy. Obviously, markets are very very sensitive right now

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<v Speaker 3>and very fragile of you, as you all been talking

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<v Speaker 3>about in terms of news, but I think the US

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<v Speaker 3>economy is a little bit stronger. People are giving a

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<v Speaker 3>credit for and the consumer will come back as the

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<v Speaker 3>economy continues to strengthen.

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<v Speaker 1>Interesting. You appreciate your time as always, Hugh Johnston. There

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<v Speaker 1>the Disney CFO on where the consumer is right now