The Walt Disney Company held its fiscal full year and Q4 2023 financial results conference call, where Executive Vice President of Investor Relations Alexia Quadrani welcomed participants and introduced CEO Bob Iger and Interim CFO Kevin Lansberry. They announced the hiring of Hugh Johnston as Senior Executive Vice President and CFO, thanked Lansberry for his interim role, and discussed the company's strong results for the quarter and the past year.

In the fourth quarter of fiscal 2023, Q4 adjusted earnings per share nearly tripled from the previous year and all three of Disney's businesses saw significant increases in operating income. The company's restructuring efforts have resulted in $7.5 billion in cost reductions and improved effectiveness in streaming. Disney remains confident in achieving profitability in Q4 of fiscal 2024 and credits their strong creative accomplishments for driving growth in Disney+ subscribers. Popular titles such as Guardians of the Galaxy Vol. 3 and The Little Mermaid have contributed to the platform's success, along with key originals like Ahsoka and The Kardashians.

The company has made significant progress in addressing past challenges and is now focused on four key building opportunities for future success. These opportunities include achieving profitability in streaming, building ESPN's digital sports platform, improving film studio output and economics, and growing the Experiences business. The company has already seen success in these areas, with Disney+ reaching over 112 million subscribers and the ad-supported version gaining 2 million subscriptions in the past quarter. Additionally, these subscribers are spending more time on the service.

Disney has the best advertiser technology in the streaming industry and has recently introduced new tools to make the platform even more attractive for advertisers. They have also acquired the remaining stake in Hulu from Comcast, which will further their streaming objectives. Disney plans to rollout a unified one-app experience domestically, including popular shows from Hulu and their extensive content library. They expect this to increase engagement, advertising opportunities, and overall margins. A beta version for bundle subscribers will launch in December, with the official launch in spring 2024. Disney also plans to implement stronger standards for account sharing, which may not have a significant impact until 2025. With their focus on technology, creative excellence, and content creation, Disney is confident in the future of their streaming business.

The company sees great potential in combining Disney+, Hulu, and ESPN for consumers. They are also focused on turning ESPN into a top digital sports platform and are exploring partnerships to help with this effort. Despite declines in the linear industry, ESPN's revenue and viewership have grown. The company is also launching ESPN BET and evaluating the future of their linear networks.

The company has identified cost-saving opportunities and is focusing on delivering high-quality content. The ABC News team is praised for their work, and efforts are being made to strengthen the film studio and focus on core brands and franchises. The company has had successful releases this year and has more anticipated releases in the coming years, including films from popular franchises such as Marvel, Deadpool, and Toy Story. Sequels for The Lion King, Frozen, Zootopia, and Avatar are also in the works.

Disney is looking to continue the success and growth of its Parks and Experiences business, with strong revenue and operating income growth and increased return on invested capital. They plan to invest in this business over the next decade, leveraging their intellectual property, technology, and creativity. The company as a whole is focused on profitable growth and expects free cash flow to improve in the near future. The Experiences business is a key driver of growth and has seen significant expansion in operating margins. As they transition to a streaming future, Disney's DTC offering will be unmatched in the industry. They also have a strong leadership team and workforce.

In the paragraph, the speaker discusses the strong position of Disney in the entertainment industry due to its valuable businesses, brands, and assets. The company's results for the quarter and fiscal year are attributed to their work across the company and the opportunities for growth and shareholder value. The interim CFO, Kevin Lansberry, welcomes the new CFO, Hugh, and discusses the company's financial results for the year, including revenue and operating income growth. The speaker also mentions the recently published recast financials and provides a preview of the financial results for each of the three segments: Entertainment, Sports, and Experiences.

In the fourth quarter, Disney saw a significant increase in operating income in their direct-to-consumer business, with a $1 billion improvement from the previous year. This was driven by the addition of 7 million Disney+ subscribers and increased ARPU. The company expects a slight decline in subscribers in the first quarter due to price increases and the end of a promotion, but anticipates growth later in the year. Advertising revenue for Disney+ also increased, while Hulu saw a decline. The company aims to reach profitability in their streaming business by the fourth quarter of fiscal 2024.

In the first quarter, the operating losses for Entertainment D2C are expected to be similar to the previous quarter, but there is expected to be a decline in the combined streaming business. This decline is expected to be offset by price increases, the launch of an ad tier internationally, and subscriber growth. Linear networks, excluding sports channels, saw flat operating income in the fourth quarter due to lower advertising and affiliate revenues, which were offset by decreased marketing and production costs. The decrease in advertising revenue was primarily driven by the domestic business, while domestic entertainment affiliate revenue decreased by 4% due to fewer subscribers and a Charter blackout. The Sports segment saw a 14% increase in operating income, driven by lower programming and production costs at ESPN and growth in subscription revenue at ESPN+.

In the fourth quarter, domestic ESPN linear advertising revenue increased by 1% despite challenges such as the absence of the Big 10 and a highly competitive marketplace. Domestic affiliate revenue decreased by 5% due to fewer subscribers and the charter blackout, but overall, ESPN's domestic business has shown growth in revenue and operating income in the past two years. At Experiences, operating results increased by over 30% in the fourth quarter and 27% in fiscal 2019, with strong performance at international parks and Disney Cruise Line. However, Disney World saw a decrease in operating results due to various factors. For fiscal 2024, the company expects strong growth in operating income at Experiences.

The domestic Parks and Experiences division is expecting solid growth for the full year, but this growth will be back-end loaded due to challenging comparisons and wage inflation in the first half of the year. The company plans to make significant investments over the next 10 years to boost growth, with ramping up of spending in the back half of the period. Capital expenditures for fiscal 2023 were $5 billion and are expected to increase to $6 billion in fiscal 2024, with higher spending at Experiences. The company also reduced its content spend in fiscal 2023.

In fiscal year 2024, the company expects to decrease total content spend by $2 billion, with sports rights accounting for over 40% of their content spend. They have also eliminated over 8,000 roles and increased their efficiency target for total company SG&A and other operating expenses to $3 billion. Inflation and volume-related cost increases were seen in the prior year, but the company expects to achieve the remainder of their savings by the end of fiscal year 2024. Overall, their expense base is expected to only increase slightly due to planned growth and inflation.

The paragraph discusses the addition of a new $4.5 billion cash content spend reduction target to the $3 billion expense target, bringing the total annualized target to $7.5 billion. This, along with growth and improvement in underlying businesses, is expected to result in significant free-cash flow generation and the company's strong balance sheet will allow for investment and shareholder returns. The company plans to recommend a dividend to the Board and sees opportunities for continued increase in shareholder returns. The call then transitions to Q&A and the first question is about the impact of the Charter-Disney Agreement on Disney and the company's plans going forward, as well as the success of the film studio.

Robert Iger, CEO of Disney, was asked about his priorities for fixing the current state of the film slate. He first addressed the Charter deal, stating that it aligns with their streaming priorities. He then acknowledged the recent success of the studio, but also recognized the challenges brought on by the pandemic and an increase in output. He stated that they are now focusing on quality over quantity and are working to consolidate their projects. Iger and the team at Disney are committed to telling great stories with their assets.

The speaker expresses optimism about the upcoming slate of content, which will include sequels and original content. They acknowledge that the quality of recent releases has not met their standards. The next question is about the profitability of their direct-to-consumer (DTC) streaming service and the possibility of offering ESPN as a standalone option. The speaker explains that they are planning for a soft landing, making ESPN available both in the bundle and as a standalone option.

Disney hopes that their new bundle will benefit consumers in both traditional and new ways, and they are not worried about how many people stay in the bundle. They are not giving specific guidance for the trajectory of their direct-to-consumer business, but they have plans in place to make it a profitable growth business. They have increased prices for the premium Disney+ service and have a more coordinated approach to pricing globally. They are also working on technology improvements and advertising to lower costs and increase margins. They did not increase prices for the advertiser-supported Disney+ service, as they are happy with the current average revenue per user from both services.

The speaker is optimistic about the potential of the company's streaming assets, including Hulu, Disney+, and ESPN. They have launched a beta version of Hulu and Disney+ combined and plan to fully launch it in March. They also plan to increase engagement and reduce costs by bundling and creating a global streaming organization. The success of their big title films on the service is a differentiator from competitors like Netflix, and they plan to focus more on these films to increase margins and grow the business.

During a conference call, Alexia Quadrani asked Bob Iger about the company's free cash flow and ESPN's growth potential. Iger responded by saying that the company expects to have $8 billion in free cash flow and $6 billion in capital expenditures, which is the highest since 2018. He also mentioned that ESPN is the number one brand on TikTok with 44 million followers, and the company believes in the potential to grow the sports business through direct-to-consumer initiatives.

Disney is looking to strengthen their position by partnering with tech companies and sports leagues to improve their marketing and customer acquisition efforts for ESPN. They believe this is necessary in order to counter the decline in multichannel subscribers and continue growth. Disney sees streaming, Parks and Resorts, studio success, and ESPN as the four key building blocks for the company. They also feel confident in their cash flow for 2024, with lower content spend and improved business performance contributing to this.

Jessica Reif Ehrlich from BofA Securities asks Bob, the operator, about his thoughts on advertising and the company's performance in AVOD and linear. Bob mentions that the linear business in India is doing well, but they are considering their options for other parts of the business. He also notes that linear advertising is slightly stronger than expected, with some improvement in the tech sector. Disney+ is now offering tools for better targeting of advertising.

The speaker discusses the strength of sports in the advertising marketplace and the potential for growth with AVOD platforms. They mention the robust advertising engine of Hulu and the potential for a blended CPM with Disney+. The speaker also addresses the possibility of ESPN adding local sports rights and distributing sports content outside of the US. They also mention the licensing of content to Netflix and the potential for Disney to do more of this without diluting the Disney brand or Disney+ growth prospects.

Bob Iger, CEO of Disney, stated that they are in discussions with potential partners for ESPN, but they do not plan to license their core brands such as Disney Pixar, Marvel, and Star Wars. He believes these brands are important for the current and future success of their streaming business. As for local sports, they are looking for partnerships that will not result in taking on too much risk. The operator then asked about potential ESPN partners and recent trends in Parks. Iger mentioned that ESPN is a big priority and they are looking for partnerships that will not result in taking on too much risk. As for Parks, there has been some noise on pricing but consumer demand has been strong, particularly in Orlando. Iger believes that Walt Disney World is performing well compared to the overall Orlando market.

The speaker discusses the company's plans to take ESPN in a direct-to-consumer direction and explore opportunities to strengthen their hand with technology and content providers. They have engaged with various entities and have received significant interest, but there are still complexities to work through. The speaker believes there is a path to deals and more information will be shared in the coming months. Another speaker addresses consumer demand for the Parks, mentioning strong performance domestically and internationally. They do not see any negative impact from the economy.

The speaker thanks the listeners for joining the call and reminds them to refer to the Investor Relations website for a reconciliation of non-GAAP measures. They also mention that statements made during the call may constitute forward-looking statements and are subject to risks and uncertainties. These include economic and industry conditions, competition, execution risks, and financial performance. The speaker notes that their expectations for DTC profitability are based on certain assumptions and may be impacted by factors such as work stoppages, return expectations, and macroeconomic conditions.

The company encourages investors to visit their website and review their filings with the SEC for more information about key risk factors. The conference has ended and the operator thanks everyone for attending. The call can now be disconnected.

This summary was generated with AI and may contain some inaccuracies.