Walt Disney Company (The)

Ladies and gentlemen, thank you for standing by, and welcome to the Walt Disney Company's Fiscal First Quarter 2020 Financial Results Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Lowell Singer. Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

Good afternoon, and welcome to the Walt Disney Company's first quarter 2020 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www.disney.com forward slash investors. Today's call is also being webcast, and the webcast and a transcript will also be available on our websites. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer, and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we will, of course, be happy to take your questions. So with that, let me turn the call over to Bob to get started.

Thanks, Lowell, and good afternoon, everyone. We've had a great quarter and a very productive start to the year. But before I talk about the quarter, let me begin with the events in Asia related to the coronavirus. Certainly our hearts go out to all those affected by this devastating outbreak, including the thousands of people who work for us in the region. In line with numerous prevention efforts taking place across China, we've temporarily closed our parks in Shanghai and Hong Kong, and we will continue to closely monitor this public health crisis. Christine will have details about the developing financial impact in her comments. Turning to the quarter, since our last call, our studio released two more films that exceeded a billion dollars each at the global box office. Star Wars, The Rise of Skywalker, which concluded the nine-episode Skywalker saga, and Frozen II, which became the highest-grossing animated movie of all time, with more than $1.4 billion in global sales, surpassing the original Frozen, which held the record since 2014. The Rise of Skywalker and Frozen II along with Captain Marvel, Aladdin, The Lion King, Toy Story 4, and the biggest movie of all time, Avengers Endgame, contributed to a total global box office for the year for Disney of more than $11 billion, shattering the previous industry record of $7.6 billion set by us in 2016. Many of these films are already available exclusively on Disney+, and the remainder will soon join the service following their home entertainment window. On the park side, we're thrilled by the overwhelming response to our newest attraction, Star Wars Rise of the Resistance, which opened in Orlando in early December and in Anaheim just a few weeks ago. Our Imagineers and the design team at Lucasfilm did an absolutely phenomenal job, and it's one of the most immersive, ambitious, and technologically advanced attractions ever created for a Disney park, and it's elevating storytelling to exciting new levels. Not surprising, Rise of the Resistance has quickly become a fan favorite at both parks, and Galaxy's Edge has been a great success at Disneyland and Walt Disney World. Of course, the high point of the quarter was the highly anticipated launch of our streaming service, Disney+. Thanks in large part to our incredible portfolio of great brands, the outstanding content from our creative engines, and a robust technology platform, the launch of Disney Plus has been enormously successful, exceeding even our greatest expectations. As we reported previously, we had more than 10 million sign-ups for Disney Plus by the end of day one. and we ended the quarter with 26.5 million paid subscribers. Since then, consumers have continued to sign up for the service directly at DisneyPlus.com, through Verizon, which offers a free year of Disney Plus to many of its customers at no additional cost, as well as through other distributors, including Apple, Google, LG, Microsoft, Samsung, Sony, and Roku. We recognize there's a lot of interest in this new business, and we wanted to give you some additional context. So I'm pleased to say that as of Monday, we were at 28.6 million paid subscribers. Going forward, it's our intention to announce subs as of the end of the quarter that we're reporting on. One additional note on sign-ups for Disney+, although we will not provide specifics, is that we are pleased to report that both conversion from free-to-pay and churn rates were better than we expected. We believe the subscriber growth to date and the overall reaction to Disney Plus reflects a variety of factors that include the uniqueness of the service, an excellent user interface, and the high quality of our brands and content. In fact, we're seeing the four quadrant appeal of our brands reflected in our subscriber numbers as well. On the content side, consumers have enthusiastically embraced the exceptional offering classic movies and shorts from our studio, including Moana and Frozen, Disney Channel series like Hannah Montana and The Suite Life of Zack and Cody, recent theatrical releases like The Lion King, which became available on the service on January 28th. The Simpsons is also quite popular, with all 30 previous seasons available. And our growing slate of original content is also of great interest to our subscribers, especially The Mandalorian, which has quickly become a bona fide hit and a cultural phenomenon. Of course, I'd be remiss if I didn't mention a certain child in The Mandalorian who has taken the world by storm. I do believe the sensational response to this new character says so much about Disney+, and our company's ability to connect with audiences. We know there's great anticipation for the substantial array of Baby Yoda consumer products hitting the market in the coming months. We'll continue to add high-quality content to the service that includes Frozen 2 and Episode IX, The Rise of Skywalker. Many of you probably saw our Super Bowl spot featuring three original new Marvel series for Disney+, Loki, The Falcon and the Winter Soldier, which will premiere on the service in August, and WandaVision, which will debut in December. These same characters and actors from the Marvel Cinematic Universe along with events from these new shows, will factor into future Marvel films as we integrate storytelling across these platforms, all under the Marvel Studio banner. We also have the highly anticipated return of the Mandalorian in October and multiple new series from Disney, Pixar, Marvel, Lucasfilm, and Nat Geo. So there's a lot to look forward to. Although our volume will increase, we remain focused on providing quality content from our core franchises and brands, not just quantity, as we continue to build our portfolio. And the creative community has taken notice as well. Many have expressed interest in joining Disney Plus' roster of extraordinary talent. The next big priority is launching Disney Plus in numerous international markets, starting in Western Europe on March 24th, when we'll launch in the UK and Ireland, France, Germany, Spain, Italy, Switzerland, and Austria. Additional markets, including Belgium, the Nordics, and Portugal, will follow this summer. In December, we signed a deal with Canal Plus, the leading pay TV provider in France. We're currently in talks with several other potential distribution partners throughout the region. We're also excited to announce that we will be launching Disney Plus in India through our Hot Star service on March 29th. at the beginning of the Indian Premier League cricket season. We will be rebranding our existing Hotstar VIP and premium subscription tiers to Disney Plus Hotstar. We see this as a great opportunity to use the proven platform of Hotstar to launch the new Disney Plus service in one of the most populous countries and fastest-growing economies in the world. Looking across our portfolio of direct-to-consumer businesses, we're also pleased with the growth of ESPN+. We ended the quarter with 6.6 million paid subscribers, and as of Monday, we were at 7.6 million. We've been especially happy with a number of partnerships, particularly with the UFC, and the recent McGregor-Cerrone fight brought in about a million pay-per-view purchases and a half a million new subscribers. We'll continue to add content to the service on an opportunistic basis. At Hulu, we recently announced that we will be reorganizing the business to more closely integrate it into our direct consumer segment in order to operate more efficiently and effectively as we look to expand our domestic consumer base as well as our presence outside the U.S. With respect to subscriber numbers, we remain optimistic about the future of the service. Hulu ended the quarter with 30.4 million paid subs And as of Monday, the number was 30.7 million. During our last earnings call, we announced the launch of FX on Hulu, which will be available to all Hulu subscribers at no additional cost. Beginning next month, Hulu will be the exclusive streaming service for all new FX original programming. FX on Hulu will also offer in-season streaming as well as back seasons for most current and library series. We view this as a fantastic opportunity to expose FX's exceptional content to a broader audience, while also making it available to consumers in new ways. We believe there's tremendous appetite for our content, and the goal of FX on Hulu is to expand our reach to include those viewers who are not linear paid TV subscribers. And that includes many of Hulu's young and highly engaged streaming audience. The addition of FX's programming is a step in the direction of continued increased investment in high quality programming for Hulu, which will be developed and produced by our existing creative engines. It's often challenging for a company to pivot in a new strategic direction, particularly when it involves navigating between established and emerging business models. But since we announced our intention to shift our strategy, we have made an extraordinary amount of progress. This included a strategic reorganization of our company, creating a direct-to-consumer and international segment. We believe the new structure would better position our businesses for the future, and now that we've completed the reorganization and launched Disney+, I'm more confident than ever in that decision. I'm enormously proud of what we have accomplished in a relatively short period of time and believe we're now well-positioned to not only withstand the disruptive forces of technology, but thrive in today's increasingly dynamic media environment. And with that, I'll turn the call over to Christine to talk more about her performance in the quarter, and then I'll be back to take your questions.