Walt Disney Company (The)

Thank you for standing by, and welcome to the Walt Disney Company's Fiscal Full Year and Fourth Quarter 2021 Financial Results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Tammy Muncy, Vice President of Investor Relations. Please go ahead.

Good afternoon. It's my pleasure to welcome everyone to the Walt Disney Company's fourth quarter 2021 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 we will post a transcript of this call to our website. Joining me remotely today are Bob Chapek, Disney's Chief Executive Officer, and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we'll of course be happy to take some of your questions. So with that, let me turn the call over to Bob to get started.

Thanks, Tammy, and good afternoon, everyone. As we close out the fourth quarter, I'm pleased to say that it's been a very productive year for the Walt Disney Company as we've made great strides in reopening our business while also taking meaningful and innovative steps to position ourselves for continued long-term growth. Despite the many ongoing challenges of the pandemic, we ended the quarter with adjusted EPS of 37 cents compared to a loss of 20 cents last year. Christine will go more in depth on the quarter and the coming year in her remarks. Last quarter, we talked about our strategic priorities for the future. And as we head into fiscal 22, we remain keenly focused on advancing them to drive our continued growth. First and foremost, telling the world's most original and enduring stories. Second, maximizing the synergy of our unique ecosystem to deepen consumers' connection to our characters and our stories. And lastly, using the power of our far-reaching platforms and new technologies to give consumers the best entertainment experience possible. I'll briefly talk about how we are executing against these priorities in three key areas, direct-to-consumer, sports, and parks experiences and products. On the direct-to-consumer side, we are extremely pleased with the success of our portfolio streaming services. Disney+, ESPN+, and Hulu continue to perform incredibly well, with 118.1 million, 17.1 million, and 43.8 million subscribers, respectively, for a total of 179 million subscriptions. To put this growth in perspective, In the past fiscal year alone, we have grown the total number of subscriptions across our DTC portfolio by 48%, and Disney Plus subs in particular by 60%. I want to reiterate that we remain focused on managing our DTC business for the long term, not quarter to quarter, and we're confident we are on the right trajectory to achieve the guidance that we provided at last year's Investors Day. reaching between 230 and 260 million paid Disney Plus subscribers globally by the end of fiscal year 2024, and with Disney Plus achieving profitability that same year. This Friday, we will celebrate the two-year anniversary of the launch of Disney Plus with our first ever Disney Plus Day, a global company-wide celebration. We are enormously proud of all that we've accomplished with the service in just the first two years. It has exceeded our wildest expectations, and we are so excited for what's to come. With this in mind, we have numerous activations planned across the entire company for Disney Plus Day, including the streaming premiere of Marvel's Shang-Chi and The Legend of the Ten Rings, which has already surpassed $430 million at the global box office. Other content coming to the service on Disney Plus Day includes the highly anticipated Disney Plus original movie, Home Sweet Home Alone, the epic adventure Jungle Cruise, and a hilarious new short from The Simpsons, and the first five episodes of season two of the fantastic National Geographic series, The World According to Jeff Goldblum. And there's more great content in the pipeline. On the heels of Disney Plus Day, we'll premiere two amazing new original series, Marvel's Hawkeye on November 24th, and the latest Star Wars adventure, The Book of Boba Fett on December 29th. And of course, we're extremely excited about the Thanksgiving holiday weekend debut of The Beatles' Get Back, Peter Jackson's highly anticipated three-part documentary. Additionally, Marvel's Eternals, which has reached more than $161 million at the global box office in less than a week, and Disney's Encanto, which premieres in theaters on November 24th, will come to the service after their exclusive theatrical runs. In total, we are nearly doubling the amount of original content from our marquee brands, Disney, Marvel, Pixar, Star Wars, and National Geographic, coming to Disney Plus and FY22, with the majority of our highly anticipated titles arriving July through September. This represents the beginning of the surge of new content shared last December at our Investor Conference 2.0. We recognize that the single most effective way to grow our streaming platforms worldwide is with great content, and we are singularly focused on making new high-quality entertainment, including local and regional content, that we believe will resonate with audiences. Of note, we have 340-plus local original titles in various stages of development and production for our DTC platforms over the next few years. As you know, we announced at our last Investor Day that we expect our total content expense to be between $8 and $9 billion in fiscal 2024. And we will now be increasing that investment further with the primary driver being more local and regional content. We are expanding our global reach by introducing Disney Plus in additional markets around the world. The service is now available throughout Japan, and we're thrilled to be launching it this Friday on Disney Plus Day in South Korea and Taiwan and in Hong Kong on November 16th. In just two short years, we are now in over 60 countries and more than 20 languages. And next year, we plan to bring Disney Plus to consumers in 50 plus additional countries, including in Central Eastern Europe, the Middle East, and South Africa. Our goal is to more than double the number of countries we are currently in to over 160 by fiscal year 23. Turning to sports, we continue to build out ESPN Plus with exclusive sports content that makes our DTC offering the perfect compliment to the ESPN Linear experience. And with every new sports rights deal, we have considered both Linear and DTC. In fact, all seven of the major deals we made in the last year and a half included a streaming component. Among them is our historic 10-year NFL rights agreement, which begins in 2023. We also recently signed a five-year deal with the league for Monday night wildcard game, which runs through 2025. Another example is our seven-year rights deal with the NHL. 75 of the league's live national games are and will be available exclusively on ESPN Plus and Hulu. And ESPN Plus is the sole home for more than 1,000 out-of-market NHL games. By the way, this is another reason the Disney Bundle is proving highly appealing to consumers because live sports are a key element and a key differentiator of our Disney ecosystem. Some 90% of the most watched telecasts last year were sports, and they continue to perform extremely well. For example, the NHL's opening night games on ESPN last month marked the highest viewed season opening doubleheader on record, with an increase of 54% over the 2019-2020 season opening doubleheader. and we are particularly pleased with the NHL's direct-to-consumer performance on ESPN Plus and Hulu. Likewise, the hugely popular UFC, fresh off a strong card at Madison Square Garden last weekend, continues to be a top performer per ESPN Plus, with six of the top UFC on ESPN Plus pay-per-views coming in the past year. At the same time, we continue to expand our original sports programming with innovative broadcasts like the hugely popular Monday Night Football with Peyton and Eli, which airs on ESPN2 and reached 1.9 million viewers by its second week, as well as the highly anticipated new shows like Man in the Arena, Tom Brady, the multi-part docuseries about the legendary quarterback premiering on ESPN Plus on November 16th. along with a host of fantastic new social and digital shows and podcasts. We're also moving towards a greater presence in online sports betting. And given our reach and scale, we have the potential to partner with third parties in this space in a very meaningful way. Suffice to say, we continue to see enormous opportunity in sports. And all of this, the rights deals, our innovative programming, and the flexibility achieved through our DTC business, which saw ESPN Plus subscribers increase by 66% over the past fiscal year alone. All of this is a testament to the clear ambition we have in sports. One of the things that sets the Walt Disney Company apart is our unique access to an incredible number of consumer touchpoints across our businesses. That, of course, includes our parks and resorts, where we've achieved a number of important milestones since our last earnings call, including the first full quarter since the pandemic began with all of our parks around the world open to guests, albeit with some limits on capacity, and the return of our entire Disney Cruise Line. At the same time, the U.S. government's approval of vaccines for 5 to 11-year-olds and the reopening of borders to fully vaccinated international travelers are both important steps towards the recovery of our business. But what is perhaps most exciting is the work that we have done during the time our parks were closed to re-engineer and reimagine the guest experience. We have introduced a number of exciting new offerings that enable guests to create their best Disney day. In late August, Disneyland Resort launched Magic Key, the new annual membership program that is resonating strongly with legacy annual pass holders, while also attracting new pass holders. In fact, about 40% of current sales are to new pass holders. And most Magic Key holders have purchased the top two tiers, Dream Key and Believe Key. with Dream Key selling out in just two months. We're also seeing a great response to the new annual pass holder program at Walt Disney World, a testament to the demand for our in-park experiences and the success of our yield management strategy. Walt Disney World rolled out its new multi-tiered full service app, Disney Genie, which allows guests to easily and efficiently navigate everything our parks have to offer in order to have the best experience possible. The response to the service in just its first month has been extremely positive. The majority of Genie and Genie Plus users have said it improved their overall park experience with nearly one-third of park guests upgrading to Genie Plus, making it possible for them to spend less time waiting in line and more time enjoying attractions, entertainment, dining, and retail opportunities. We are very encouraged by what we're seeing and look forward to launching Disney Genie at Disneyland very soon. Alongside these transformative programs, we continue to invest in our parks and resorts themselves. We introduced a host of new attractions as part of Walt Disney World's 50th anniversary celebration, which kicked off on October 1st. These include Remy's Ratatouille Adventure at Epcot, which has quickly become one of the park's top attractions, our new themed restaurant, Phase 220, and two new nighttime spectaculars. And there is lots more in store in the coming months, including the highly anticipated indoor coaster Guardians of the Galaxy Cosmic Rewind and the one-of-a-kind Galactic Star Cruiser experience. As part of this immersive two-night adventure, guests will become heroes of their own Star Wars stories. Reservations went on sale just three weeks ago, and the first four months of voyages have virtually sold out for this premium experience. Disney Cruise Line continues to be one of the highest rated guest experiences of any of our offerings. As I said earlier, all four of our ships are now sailing. and we continue to see tremendous demand for the incredible experiences we offer at sea. We are thrilled to be launching a new ship, the Disney Wish, in June of 2022, and will welcome her sister ships to the fleet in 2024 and 2025. Combined, these three vessels will help increase capacity and our footprint in a business that has historically generated a double-digit return on investment driven by a premium price point well above the industry average. Before leaving our parks and experiences, I want to mention the continued transformation of our consumer products business. We have almost completed the reduction of our physical footprint, which will enable us to pivot our approach with a focus on our e-commerce platform, Shop Disney, and on more compelling retail partnerships, such as Disney Store at Target, which will triple its locations by the end of the year. In short, our parks around the globe now have more to offer guests than ever before with our new offerings, and we're making it even easier for them to have the best time imaginable tailored specifically to their individual needs and preferences in a way only Disney can. Our company is truly unique in that we have a significant presence in the physical world through our parks and resorts, as well as media entertainment assets in the digital world. And it is incredible to see how our use of emerging technology and insights gained through our innumerable consumer touchpoints is enabling us to transform the way people interact with and experience our stories and products in both worlds. The Walt Disney Company has a long track record as an early adopter in the use of technology to enhance the entertainment experience. Steamboat Willie, the first cartoon with synchronized sound. Our groundbreaking development and use of audio animatronics. We were the first to distribute downloaded content on the new Apple iPod back in 2005. Pixar has been a pioneer in computer animation. These are just a few examples. Suffice it to say, our efforts to date are merely a prologue to a time when we'll be able to connect the physical and digital worlds even more closely, allowing for storytelling without boundaries in our own Disney metaverse. And we look forward to creating unparalleled opportunities for consumers to experience everything Disney has to offer across our products and platforms wherever the consumer may be. As we look ahead to this next frontier, given our unique combination of brands, franchises, physical and digital experiences, and global reach, we see limitless potential, and that makes us as excited as ever about the Walt Disney Company's next 100 years. With that, I'll turn it over to Christine. and she'll talk in greater detail about the quarter and the year ahead.