Walt Disney FY 4Q15 Earnings Call Notes

Can already see the impact of star wars across businesses

“We’re still six weeks away from releasing the first new film in a decade, but you can already see the impact and value of that franchise in various businesses. We have Star Wars products in numerous retail categories, especially toys and games. And the huge global response to the brief glimpse of new merchandise we revealed on Force Friday in September, suggest the demand will only grow with the release of new movies.”

Earned $5.15 for full FY

“Excluding items affecting comparability, fourth quarter earnings per share were $1.20, an increase of 35% over last year, and for the full-year were a record $5.15. Fourth quarter and full-year results benefited from an additional week of operations in our fiscal calendar this year. Our fiscal 2015 earnings represent a record for the company, even after excluding the estimated effect of the 53rd week.”

I would not retract or change the comments I made last quarter. We were being candid

“Regarding your first question, there is nothing that I would either retract or in any way change. To just reiterate what we did, we updated guidance that we had given in 2014 about ESPN sub-fees, and that guidance holds today. We also decided to be candid, I think maybe refreshingly so, about what the industry was experiencing in terms of sub losses during roughly the last period. And we feel that there certainly should be no reason to panic over comments like that. The fact remains that we’re in an environment today that’s definitely changing, it’s different than the environment before, there’s a lot more competition for people’s time.”

Launching direct to consumer SVOD in UK

“We’re launching in the UK for a variety of reasons. One, it’s a strong Disney market, huge affinity for the Disney brand and so we wanted to test this in the market where there was already strong brand affinity. Second, we looked carefully at what was available to us to put on this platform, because we obviously have to factor in – speaking of flexibility, by the way – deals that already exist that encumber us from getting access to the product to sell on our own. And we had an opportunity to bring this to market in a manner that worked in relation to the product available and the deal that we have mostly with Sky in the UK.”

Think about the consumer and work backward to the technology

“I’m struck with something that Steve Jobs once said, when he was asked about technology and how he developed it. And he said that he starts with the consumer and he works backward to technology. And we’re actually doing that, too. We’re thinking about the consumer and the consumer today is a different consumer than before. They don’t just want to sit in the living room on a couch and watch our product on a fixed screen on the wall with a remote control in their hand. They want to do it in many more ways, and they have the authority thanks to technology to make those decisions.”

We start with what we believe the consumer wants

“So, we’re starting with what we believe the consumer wants. Every one of those examples that you used, which sounds like a strategic initiative for the company is actually a strategic initiative for the consumer. It’s really that simple. And this is a company that has been consumer-facing from the start.”

We’d know we’re making too much content if the quality is going down or the market is telling you there’s fatigue

“Let’s start first of all with I’ll call it making more of what we own already, meaning these great franchises and brands. You know that you’re making too much when either your quality is going down or the marketplace is telling you that there’s fatigue or they’ve had enough.”

Disney at Bank of America Conference Notes

Tom Staggs – Chief Operating Officer

Capital priority highlights include M&A and parks

“there is no surprise to you or anyone else that our disciplined approach to capital allocation is going to continue. We believe in having a very efficient capital structure. We also want to make sure that we are investing and allocating capital towards projects that will drive both growth and high returns whether that be in our existing businesses or in terms of M&A opportunities that we will see, so that discipline will continue. The good news is that we see a number of opportunities that make those kind of investments. The Shanghai Disney Resort, which you mentioned is a great example of that and so we think that we will be able to invest profitably to give the returns that we all look for and deliver value for shareholders, but also drive growth for the company.”

I think the market overreacted to the bundle breaking

” I think the short answer to your question is yes, I think the market overreacted. We are confident in our programming services ability to thrive and they are extremely valuable in the context of the existing platforms, but they are also very attractive to any new entrance; and as the market evolves I think we’re going to continue to see new entrants, we are going to continue to see demand for our programming services and they will continue to be an important part of those services actually being successful in their launches, I think that’s supporting. You look at the strength of our brands and our programming and it’s we feel very good about where we sit.”

Continue to believe in the bundle. Over the top isn’t so simple

” look as I mentioned, we continue to believe in the bundle and we think and we will continue to look at ways to enhance the value of that. So, in the foreseeable future I don’t see over the top a simple, now everybody is over the top as being an outcome that’s going to happen. To the extent that there is opportunities to broaden reach through going over the top either in concert with the existing model or because the model shifts, I feel just as good about the brands and the program that we have to make sure that we can make that pivot if the need is there, but I don’t see that soon.”

Staggs’ interests appear to lie with parks

“I could talk about Shanghai Disney Resort all day long.”

Avatar land in Orlando

” once you see the film is to come and it’s going to be really one of the most spectacular attractions that were built. But also we’re going to make mountains float because you have to do that on Pandora, so why wouldn’t we do it in Orlando – and the – it was quite an engineering feet.”

new content feeds opportunity, like in parks

“the pipeline of new content for us means that there is endless opportunity for us to keep things fresh to monetize and leverage franchises around the whole company and Parks is a great example.”

Andrew Sohn Notes: RL, HOS, DIS

Andrew Sohn, a junior at Columbia University, is a contributor to Avondale’s company notes database. Below are quotes from some of the calls that Andrew has read this week.

 

With inventory problems at the beginning of the year, long term brand preservation as opposed to short term inventory management proved to be a good bet to make

“These conditions created an excessive inventory and, therefore, more promotional environment in North America. We made the decision to be less promotional than the landscape, because we believe it’s critical to protect our brand. Looking at comp growth across some of our largest customers, we are in line or better than their stores’ average performance.” –Ralph Lauren (RL)

 

Inventory levels are starting to normalize

 

“We saw our inventory was up about 8% at the end of the quarter, and we feel very comfortable with the inventory levels in the content of that inventory. If you look at the inventory at the end of the quarter and what drove the increase, it really was impacted by the timing of receipt plans as well as getting ready for the launch of Polo Sport, the expansion of Polo Women’s and the opening of new stores. So when we look at the underlying factors that we’re getting ready for going forward, we feel very confident and comfortable with the inventory content and level.” –Ralph Lauren (RL)

 

There’s still more room downwards

 

“We actually share the view that we are in a secular downturn, driven by fundamentals that are largely out of our control and which only time will sort out. So, there are plenty of reasons to be somber. However, we are what we call pessimistic optimist. While things are bad, we believe they’re going to get worse before they eventually get better.” –Hornbeck Offshore Services (HOS)

 

Cash is king, even more so given the unpredictability of the future

 

“Now that cash truly is king, we intend to be very stingy with it. While we continue to grow cash from operations and do not expect that to stop, our ability to do so is not a guarantee. Without a prudent margin of safety, we would not afford to be optimists and instead, could find ourselves in the same position as some of our public and private competitors.” –Hornbeck Offshore Services (HOS)

 

Cash is even more important with the lack of visibility for the future

 

“To our way of thinking, it only seems wise to strategically horde cash to preserve our position in an unsettled environment such as this one, where the depth and duration of this downturn cannot reasonably be predicted.” –Hornbeck Offshore Services (HOS)

 

 

Still a lot of rigs out there in the Gulf of Mexico

“The sustained level of deepwater drilling units active in the Gulf of Mexico is indicative we think of the long-term promise that this market holds. After all, we’ve seen a 50% drop in the commodity price of oil and yet there are still as of today 40 or so deepwater units actively drilling in the Gulf of Mexico. We see that level remaining flat for the time being, but is still at historically high levels. Plus, we expect five additional high-spec floating rigs mobilized to the Gulf of Mexico over the next 12 months.” –Hornbeck Offshore Services (HOS)

 

 

 

Good management is so important during tough times

 

“The silver lining here is that poor markets tend to reward better managers and call out weaker players. Our focus will be in delivering great service to our customers, the customers we have and in finding ways to build efficiencies into everything we do without sacrificing quality or safety.” –Hornbeck Offshore Services (HOS)

 

Feels like a V bottom

 

“However, given the current operating environment and uncertainty as to the depth and duration of the current downturn, we know that cash will be king as we navigate further through this cycle, especially if this market recovery turns into a long U bottom or worse, as some people fear, the dreaded L bottom. At this point, it certainly does not feel like a V bottom.” –Hornbeck Offshore Services (HOS)

 

 

Decrease in multichannel households hurting ESPN subs

 

“ESPN’s experienced some modest sub losses although those have been less than reported by one of the prominent research firms and the vast majority of them, 80%, were due to decreases in multichannel households with only a small percentage due to skinny packages.” –Walt Disney Co. (DIS)

 

Confident ESPN can transition into new media

 

“ESPN’s embraced technology better than anyone in traditional media reaching its fans and engaging with them in more meaningful ways online and on mobile devices with its linear channels as well as with an array of additional programming, sports information, commentary conversation and very rich social media features. All of this adds up to a very strong hand and gives us enormous confidence in ESPN’s future no matter how technology disrupts the media business.” –Walt Disney Co. (DIS)

 

 

Tourism doing well

“At Parks and Resorts growth in operating income was driven by higher results at our domestic operations which saw gains in both attendance and guest spending, partially offset by lower results at our international operations.” –Walt Disney Co. (DIS)

 

 

 

Netflix doesn’t spell the end for traditional media giants like Disney

 

“In addition to that you have the growth of platforms like Netflix or SVOD, that’s interesting as well because, while one could argue that for all the right reasons that’s starting to incentivize or maybe incentivizing people including millennials to cord cut, it’s also providing us opportunities because the Netflix has become a really important partner to us in buying our off-network product, buying original programming for us, the Marvel deal is a good example. And then our film library kicks in the output deal for the ’16 slate kicks in. So we look at Netflix actually right now as more friend than foe because they have become an aggressive customer of ours.” –Walt Disney Co. (DIS)

 

 

Embracing disruption, greater market size and good positioning

“the average American is watching about 5.5 hours of TV a day and we see that going up to about 6 hours. The reason they’re watching 5.5 hours of TV a day is because of just what I just described as huge value in the multichannel product for customers and its popular and the reason we believe it’s going to increase from 5.5 hours to 6 hours is because of the advent of new technology driven platforms, whether they are over-the-top, whether it’s SVOD, whether it’s new smaller services. So it’s a long over that way around my saying that we actually believe that with Disney, ABC, ESPN, our products we are really well-positioned. We’ve been among the first if not the first to offer our products on new platforms even if it’s somewhat disruptive, we still believe in the expanded basic service for years to come but we are going to take advantage of opportunities.” –Walt Disney Co. (DIS)

 

China proving to be a difficult market

 

“The home-video market in China is obviously challenged by the fact that it’s a market that’s been you know rife with piracy and so a legitimate home-video market never quite developed there.” –Walt Disney Co. (DIS)

 

 

Disney 2Q15 Earnings Call Notes

Let me address ESPN right off the bat

“Before Tom takes you through the highlights of our businesses, I’d like to address an issue that has been receiving a fair amount of interest and attention these days and that’s the rapidly changing media landscape especially as it relates to ESPN. We are realists about the business and about the impact technology has had on how product is distributed, marketed and consumed. We are also quite mindful of potential trends among younger audiences, in particular many of whom consume television in very different ways than the generations before them”

ESPN has experienced modest sub losses, but most due to cord cutters, not skinny packages

“ESPN’s experienced some modest sub losses although those have been less than reported by one of the prominent research firms and the vast majority of them, 80%, were due to decreases in multichannel households with only a small percentage due to skinny packages.”

We’re not ready to give exact numbers on sub losses at ESPN

“the numbers that have recently been in the press which are Nielsen numbers were higher in terms of sub losses than those that we are seeing. But we’re not at this point ready to give specifics in terms of what those numbers are. ”

Multichannel is still the dominant form of TV viewing in the US, and most households watch ESPN

” I think while there has been a lot said about what’s going on in the multichannel universe and as I said in my comments, it’s still the dominant form of television viewing and it is the dominant form clearly for sports viewing as well. And we mentioned 83% — statistic 83% of all U.S. households watched ESPN, U.S. multichannel households watched ESPN in the first quarter.”

We don’t see dramatic declines in the next five years in linear TV, so we’re not taking radical steps to move to OTT

“when we look at the universe we don’t really see dramatic declines over the next say five years or so and therefore we are not taking what I would call radical steps to move our products into over-the-top businesses to disrupt that business because we don’t think right now that is necessarily the greatest opportunity. We just don’t think it’s necessary.”

Netflix has become a really important partner to us

“Netflix has become a really important partner to us in buying our off-network product, buying original programming for us, the Marvel deal is a good example. And then our film library kicks in the output deal for the ’16 slate kicks in. ”

Netflix is more friend than foe

“So we look at Netflix actually right now as more friend than foe because they have become an aggressive customer of ours. I also think that products like Netflix are pretty attractive because they offer a very user-friendly, efficient and oftentimes much less expensive way for people to watch television.”

The Average American is watching 5.5 hours of TV per day

“the average American is watching about 5.5 hours of TV a day and we see that going up to about 6 hours.”

Motion picture consumption growing thanks to China

“On the motion picture side we see global motion picture consumption actually growing. A lot of that is obviously due to the number one growth market in the world in terms of grosses and that’s China where we have seen just massive increase in movie-going over the last two to three years.”

Excited about Star Wars across the company, parks no exception

” with regard to Star Wars, as we have said we are excited about Star Wars across the company and parks is no exception. So I would say stay tuned for more specifics about our plans there.”

Iger tempering expectation on Star Wars

” there are markets around the world that are less familiar with Star Wars than say the United States for instance. So while the enthusiasm is I think rather apparent we just want to be careful that the world doesn’t get ahead of us too much in terms of the estimates and we’ve seen them as well. We are making at this point no estimates whatsoever in terms of what we believe the film will do.”

Disney FY 2Q15 Earnings Call Notes

We just want Verizon to honor their contract

“the reason we like navigation is the better the navigation, usually the better the consumption. Poor navigation usually leads to less consumption. In the Verizon case, we were simply asking them to adhere to the contract that they had negotiated with us.”

We like new entrants into distribution

“In the Sony case, I don’t have to get into many details, but simply put, it wasn’t to our advantage financially. But again, overall, we think new entrants into the distribution marketplace good for us. I will say that I have not seen many so-called skinny packages, except for the Sling package, that I think is particularly attractive to consumers in terms of the price-to-value relationship”

There are going to be hidden costs to unbundling

“And I think the last thing I think needs to be said is — and I know that some of you have written about this — is that when you unbundle, particularly your broadband service, there are going to be a hidden cost or there are hidden costs. As a for instance, you buy an expanded basic bundle, you get broadband with it. You buy a skinny package, you have to pay extra for broadband and that cost goes up substantially.”

A lot has changed in 10 years since the last star wars movie was released

“I think first of all, you have to understand that this is already a very strong franchise. But a film has not been released in 10 years. And so while we’re not treating this as something that is brand new, we’re mindful of the fact that there’s a whole generation of people out there that were not as steeped in the Star Wars lore and not as, in effect, in love with the franchise as an older generation.

And there are markets around the world that weren’t as developed back 10 years ago and beyond that. China is probably the best example; it’s now the number two movie market in the world. Obviously, when the last Star Wars film released, it was barely a market from a movie perspective.”

Only 16% of our revenue is ad related, so our exposure is a little less than other companies

“The last thing I’ll say is as a company, about 16% of our revenue this year is advertising generated. So it’s still a substantial amount of money, but our exposure to these changes is less than a lot of the other media companies.”

We do have some development under way to take product direct to consumer

“I don’t know that there is an absolute answer in terms of timing. In terms of ability, we have said that with these channels and these brands — ESPN, ABC, Disney, maybe even down the road something related to Star Wars and Marvel — we do have an ability as a company to take product, specifically filmed entertainment, television, movies, directly to consumers. And we’ve got some development underway to do just that.”

Distributors do provide value because they spend a lot of money on customer acquisition

“That said, the distributors, whether it’s cable or satellite or even some of the new platforms, create real value for us, too. They already are in the customer acquisition business. They’ve already spent significant amount of money in capital to create their platforms. And they manage the relationship with the consumer, whether it’s billing or technology or whatever fairly effectively.”

When we believe the opportunity to self distribute is bigger than for others to do so, then we’ll go into that business more directly

“When we believe that our opportunity to distribute directly is bigger than or better than the opportunity for others to distribute, then we’ll go into that business more aggressively. And I don’t think any other company is positioned as well as we’re to do that because of the strength of those brands.”

Complementing an analyst’s work

“I thought your analysis, by the way, David, was really well done. I read most of it. It was lengthy, by the way, but I thought it was really well done. Provocative in some cases. And actually the comment that I made earlier about unbundling broadband, I actually got from that analysis. So I appreciate it.”

Technology is the friend of high quality media

“I think we’re entering into a pretty interesting world, where technology is for the most part the friend of high quality media. Because it’s going to give us many more opportunities to reach customers, either directly or through third-parties. So we’re viewing this as kind of a new world order in many ways, because of I think the impact of technology on media, but one that’s going to be very beneficial to this company.”

Nobody can launch a distribution business without the channels that this company owns

“I don’t think anybody can successfully launch a distribution business without the channels that this company owns, frankly. And whether they run them as loss leaders or not, I don’t think that really has much of an impact on us.’

A huge pipeline of content

“When you look at what we have in the pipeline, whether it’s in Marvel films, including Iron Man this summer and Captain America and two more Avengers films and diversifying to Black Panther and Captain Marvel or what you know what we have that I mentioned earlier on the Star Wars front or what’s going on in animation from both Pixar and Disney Animation. We’ve got a tremendous original film from Pixar this summer called Inside Out and another one called Good Dinosaur later in the year.

First time in a calendar year we’ve ever released two Pixar films. And then we got Toy Story IV, Incredible and Cars and Finding Dory which is a sequel to Nemo. Tremendous hand. So I think you’re going to see over the next 5 years to 10 years, certainly 5 years, a real growth from the Studio because of all that.”

Disney 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Digital has clearly been growing faster than traditional ad platforms

“Well, I think that you are definitely seeing more compelling growth in advertising spending on new media platforms, digital platforms than you are on the traditional. I don’t think though that it’s matched dollar for dollar in the sense that I don’t think all the money that’s flowed away from broadcasting in the upfront necessarily flowed directly into new digital platforms, even though I believe that these platforms have siphoned off some money from the traditional broadcasters. I think some of the money just wasn’t expressed because advertisers are choosing to essentially commit the spending much closer to the time that the spots actually run. So I think you’re going to see some of the money that wasn’t in the upfront expressed in scatter and some of it clearly move to new platforms.”

The world is changing from an ad perspective

“We’ve made a conscious decision as a Company to essentially not be as reliant on advertising as we were in the past. So it represents probably somewhere in the neighborhood of the low-20% range of our total revenue. That’s pretty purposeful because we see a much more competitive environment out there for advertising.

We intend to participate in that environment in the sense that by moving product into new digital platforms, we fully expect to gain revenue on the digital advertising front, but I think you’re going to see basically continued pressure on traditional advertising platforms. We’re certainly seeing it a lot, not we as a company but you’re seeing it in the business in print and in radio and probably in outdoor, and I think that’s pretty telling. Television, a little less susceptible to that because there as an advertiser we can say it’s still a very, very effective way of advertising a product. But definitely the world is changing.”

Give up short term margin for long term value

“It does have short-term impacts on margins, but positive long term impacts on value.”

We believe in Netflix and we believe we can monetize our content there

“we’re growing our business with Netflix, first of all because we believe in their platform and its future. And we have from the beginning, when we did the output deal with the studio and we also believe that our brands can be well monetized on their platform, which is evidenced what they are paying for our brands and our content. So as long as that continues, which I think it will, not just domestically but internationally our business is expected to be robust with them or even grow. So it’s a good combination. We’ve got brands and content that they want and they have a platform that we like and that we want and they are willing to pay the right price for our content, good prices for our content. I think it’s mutually beneficial.”

Sports is a growing area for advertisers

“I think sports is definitely a growth area for advertisers. Obviously live means a lot, but there just seems to be growing interest in sports in general. I think that’s one of the reasons why we’ve seen more competition for sports rights in the last probably five years, because it’s just more appealing to advertisers.”

Some film is not going to work

“Well I can pretty much guarantee over time that every single film will not work. I’ve been in the business long enough to know that. I can’t tell you which one wont right now. But that’s the business.”

Not saying anything about Han Solo except that Episode VII is on track for December

“, we’re not going to get into any details about Harrison Ford’s accident and except to say that we are on track to premier the film on December 18, 2015”

Disney 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“our unprecedented deal to create multiple live action series and a mini series event exclusively for Netflix, beginning in 2015. Under the agreement, Marvel TV in association with ABC Television Studios will develop four serialized programs featuring some of the Marvel’s popular characters; Daredevil, Jessica Johns, Iron Fist and Luke Cage.”

“with the phenomenal global success of Marvel’s The Avengers and Iron Man 3. Marvel Studios became the first studio in history to release two $1 billion movies in a row.”

“For the quarter attendance at our domestic parks was comparable to prior yeah, an increase in attendance at Walt Disney World was offset by a decrease at the Disneyland Resort given the comparisons to last year when there was a surgeon attendance around the opening of Cars Land.

Domestic per capita spending was up an impressive 9% on higher ticket prices and food and beverage spending. Average per room spending at our domestic hotel was up 4% compared to prior year and occupancy in the quarter was comparable to prior year redespite an increase in available room nights.”

“Avatar Land is playing a similar role in Disney’s Animal Kingdom as we are converting that park into a full-day experience that goes into the evening and expect to have impacts on the overall volume and length of stay at that park as we well.”

“[negotiations with DISH] It’s just complicated and right now, the negotiation is more about issues related to technology than related to the more standard issues of basically sub fees and distribution.”

“TV Everywhere, is something that actually is adding to our subscription revenue because they’re making it available to their customers and it is a rather compelling product because suddenly as you know, Todd, the customer is no longer basically confined to just having watch the multichannel service in the home. They can really watch it everywhere. The number of subs that will have this service and in effect the growth in sub piece from it is only going to continue as we cut more deals with distributors.

The other thing that’s going to occur is at some point presumably in around the year we’re going to start getting consumption measurements from Nielsen on these apps and that will allow them to generate more advertising revenue than they’re generating today. I can’t quantify for you what that may be, but I think it is safe to assume that at some point in, sort of, 12 months or so, we’ll start seeing even more growth in advertising revenue from Disney, ABC and ESPN mobile consumption. And that could be an interesting growth – or create an interesting growth spurt for us in revenue.”

“the Disney Junior properties are absolutely on fire Bob, refer to the ratings and the strength of Disney Junior and whether it’s so Doc McStuffins, Manny, or Jake and the Never Land Pirates they are experiencing double digit growth rate now on the licensing side”

“Marvel has thousands of characters and it would not have been possible if – it is not possible to mime them all with filmed entertainments. And in fact, while these characters are attractive characters, they’re not among the most popular and they are characters that we probably were never going to make feature films about. Although, if they’re popular on Netflix, it’s quite possible they could become feature films.”

“when you consider that we’ve got Disney, Marvel, Pixar and Lucas products in the marketplace that the scale that that generates, creates margin expansion and general growth opportunities, some of it comes just from gaining access to more shelf space, some of it comes from basically being able to cut better deals as well. It’s just a healthy collection of assets that retailers and licensees around the world are really interested in.”

The Key to the Magic Kingdom Lies at ESPN

Bob Iger is widely credited for revitalizing Disney by refocusing the business on core assets and pursuing a strategy of content acquisition starting with Pixar and Marvel and, most recently, Star Wars.  Disney’s stock is up 32% year to date and has more than doubled over Iger’s tenure.

While it may be true that these moves have re-energized the company, in truth most of the credit for Disney’s recent success probably is more accurately attributed to Michael Eisner than Iger.  That’s because the vast majority of Disney’s operating profits come from its media networks, which were primarily acquired by Eisner in 1996 when Disney bought Cap Cities.

The cable networks group alone, for which the crown jewel is ESPN, contributes 32% of $DIS revenue and 55% of operating income.  The studio, the parks and the merchandise all are secondary to Sportscenter.

Disney shareholders should keep this in focus, because as more and more media becomes streamed over the internet, it’s not clear to me what’s to stop the NBA, NFL or MLB from incrementally distributing their own content.  If that leads to problems for ESPN that means problems for Disney.

 

Disney Operating Income

 

Source: 2012 10-k