Disney has pegged total cash content spending at around $30 billion for this year — but the ongoing Writers Guild of America strike may drive that down, CFO Christine McCarthy said.
“If you haven’t noticed we’re in the middle of a writers strike,” McCarthy said, speaking Wednesday at MoffettNathanson’s Technology, Media and Telecom Conference in New York. The WGA walkout may reduce Disney’s cash spending on content for the balance of the year, she said.
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At the MoffettNathanson conference, MCarthy appeared alongside Disney president of ad sales Rita Ferro. The two Disney execs spoke a day after the media conglom’s upfront presentation in the Big Apple to ad buyers and brands — which was noticeably light on scripted fare, given the writers strike. Marvel’s Kevin Feige previewed upcoming Disney+ series “Secret Invasion,” featuring Samuel L. Jackson and Don Cheadle, and announced premiere dates for “Loki” Season 2 and “Hawkeye” spinoff “Echo.”
Disney already has been in the midst of a companywide cost-cutting initiative, with CEO Bob Iger focused on trimming content spending, McCarthy said. Disney expects to take a write-down in the June quarter of $1.5 billion-$1.8 billion from removing content from its streaming platforms.
Before Iger restructured the company’s divisions, Disney’s entertainment and ESPN businesses were not managed on a global basis, McCarthy said — decisions on content spending, including sports rights, were made regionally. Now the company has shifted to “spending our content dollars on the highest and best use” worldwide, she said.
The most immediate effect of Disney’s cost cutting will be “plain-old, blocking-and-tackling SG&A,” McCarthy said, referring to reductions in selling, general and administrative expenses. “Those are the things we are doing right now… It is tough work. It’s emotionally draining,” she said. McCarthy said Disney is “well on our way” to achieve $2.5 billion in SG&A cost savings, which has included mass layoffs. “The things we have firmly in our control are our [management] structure… and our cost structure,” McCarthy said.
On the ad front, “We have leaned into sports and streaming for the last 12 months,” Ferro said, while she said she’s still bullish on linear TV advertising. Disney owns and operates its own ad-tech stack, which among other things will let it deliver more targeted ads on Disney+, she said, calling it a key differentiator in the market.
McCarthy commented, “Everyone’s pretty much down on advertising. But the fact of the matter is, advertising will come back.”
Disney+ shed 4 million subscribers in the first three months of 2023, including a loss of 300,000 in the U.S./Canada. In the quarter, Disney+ Hotstar lost 4.6 million subs in India, so “Disney+ core” subscribers were up, McCarthy noted.
At the same time, the company narrowed its streaming losses by $400 million, an improvement of 26% year over year, and Disney said it would remove content from Disney+ to cut costs while Iger also announced an expected price hike on the ad-free Disney+ tier.
On the May 10 earnings call, Iger announced that the company would launch an integrated Disney+/Hulu “one-app experience” in the U.S. by the end of 2023 — indicating Disney’s desire to buy out Comcast’s 33% stake in Hulu. On Tuesday at the MoffettNathanson conference, Comcast chief Brian Roberts signaled he was willing to cut a deal to sell the Hulu stake to Disney — for the right price.
Unlike Netflix, Disney has not put out a target on streaming margins because “we’re focused on break-even, which is firmly in our sights,” McCarthy said. That said, she maintained that Disney’s direct-to-consumer streaming business will produce “long-term sustainable returns to shareholders.”
“Yes, we know there are headwinds in this industry, there are challenges,” said McCarthy. “But when we look at the hand we have to play, it’s a great hand.”
Speaking about Disney’s theme parks business, McCarthy said the “silver lining” of the COVID pandemic was that it was able to step back and look at capacity management of guests. U.S. theme parks have seen a faster rebound, as locations in Asia and Paris remained shut down longer, she said, but at this point the international parks are poised to be strong contributors to the business. In addition, Disney’s cruise lines segment has “snapped back” this year, McCarthy said.
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