EARNINGS CALL

Disney CEO Sees Strong Future For Sports

While the pandemic delivered a big hit to the company’s theme park and movie business in the just-reported quarter, TV broadcasting was a bright spot, with political advertising for the ABC O&Os and increased affiliate revenues (retrans and reverse comp) countering a drop in other advertising. CEO Bob Chapek was also bullish on his company’s streaming efforts.

The Walt Disney Co. surprised Wall Street with a better-than-expected fiscal fourth quarter Thursday, despite it resulting in the company’s first annual loss in more than 40 years.

Broadcasting was a bright spot, with political advertising for the ABC O&Os and increased affiliate revenues (retrans and reverse comp) countering a drop in other advertising. Much of the discussion during the company’s conference call with analysts was about the theme park business, which accounted for most of a $3.1 billion hit attributed to COVID-19 for the quarter that ended Oct. 3.

Walt Disney World in Florida and parks outside the U.S. have reopened at reduced capacity (although Disneyland Paris has again closed) and company officials say they have returned to profitability. CEO Bob Chapek said Disney has proven that it is able to run parks responsible under health safety guidelines and said he was disappointed in the state of California for keeping Disneyland closed. He slammed the state for an “arbitrary standard” which continues to hurt Disney and many other businesses.

On the media networks side, Bank of America analyst Jessica Reif Ehrlich noted the decline in sports viewing that has occurred this year. She wanted to know whether that might continue post-COVID.

“In terms of sports ratings, we feel that in the context of everything that has been happening, they’re actually holding up well. We would be careful not to draw any conclusions about the ultimate health of sports — sort of the long-term impact that you suggested — during this pandemic. I really think that we’re sort of looking at apples and oranges here,” Chapek said.

“I think the best comp we probably have is the NFL, which has been relatively flat. Our Monday Night Football viewership has been down 4%. That’s relatively modest, despite all of the headwinds. We’ve got the risk of seasons not finishing. To your point, we don’t have fans in the stands. We have the risk of games, individually, every week being cancelled. We have election news as competition. And we really can’t have our fans doing what they like best, which is watching in a communal setting. They’re pretty much watching by themselves,” the CEO said of sports viewing under COVID-19 restrictions.

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“Despite all of those headwinds, the fact that our Monday Night Football business is relatively flat in the viewership is really encouraging,” Chapek added.

“We actually don’t have any concerns about the long-term health of sports. Obviously, we’ve got some headwinds as it pertains to short-term challenges. We think that all-in-all, in context, the health of sports is pretty decent given everything that’s going on,” he concluded.

Later in the call, Chapek was asked about the loss of pay TV subscribers and what Disney might do to provide sports programming to cord-cutters.

“I will tell you that we’ve got a product that I’m really excited about and that has experienced some rapid growth — that’s Hulu+ Live TV. It really gives the utility that consumers might normally find from the cable or satellite subscriber and be able to get it over the top directly to their homes. And I think this will increasingly act as a solution to those households that have walked away from their more traditional cable-type subscriptions and potentially slide it over to Hulu+ Live TV,” Chapek said.

While the pandemic delivered a big hit to Disney’s theme park and movie business in the just-reported quarter, TV broadcasting was a bright spot. Click To Tweet

Streaming services are getting lots of emphasis at Disney under a recently announced restructuring which separates creative development responsibilities from management of various distribution outlets. The CEO is gung-ho on streaming, noting that one-year-old Disney+ has topped 73 million paid subscribers at the end of the fiscal fourth quarter. For all streaming platforms worldwide, the company has surpassed 120 million subs.

Chapek and CFO Christine McCarthy promised more information about the outlook for the company at a virtual investor day on Dec. 10.

 


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