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