Walt Disney Company (The)

Good day and welcome to the Walt Disney Company's second quarter 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press start in two. Please note that this event is being recorded. I would now like to turn the conference over to Alexia Quadrani, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon. It's my pleasure to welcome everybody to the Walt Disney Company's second quarter 2023 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 being webcast and a replay and a transcript will also be made available on our website. Joining me for today's call are Bob Iger, Disney's Chief Executive Officer, and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we'll be happy to take some of your questions. So with that, let me turn the call over to Bob to get started.

Thank you, Alexia, and good afternoon, everyone. Allow me to digress for a moment to congratulate Universal for the tremendous success of Super Mario Brothers. It certainly proves people love to be entertained in theaters around the world, and it gives us reason to be optimistic about the movie business. Now turning to our results. We're pleased with our accomplishments this quarter, which are reflective of the strategic changes we've been making throughout our businesses. We're also proud of what we continue to deliver for consumers, from movies to television to sports news and our theme parks. A few recent highlights include Marvel Studios' Guardians of the Galaxy Volume 3, which topped the global box office in its opening weekend with $289 million. The first round of the NBA playoffs was the most watched ever across Disney networks, and we've been averaging 5 million viewers throughout the first 22 games, up 15% versus the comparable point in last year's playoffs. ABC continued its run as the number one entertainment broadcast network for the fourth consecutive season. And at our domestic parks, we continued to improve the guest experience with our recent pricing changes and exciting new attractions, including the reimagined Mickey's Toontown at Disneyland and Tron Light Cycle Run at Walt Disney World. I've been back at the company for almost six months, and in that time we've embarked on a significant transformation to strategically realign Disney for sustained growth and success. I'm pleased to say that the strategy we detailed last quarter is working. Our new organizational structure is returning authority and accountability to our creative leaders, as well as allowing for a more efficient, coordinated, and streamlined approach to our operations. The cost-cutting initiatives I announced last quarter are well underway, and we are on track to meet or exceed our target of $5.5 billion. We're delivering progress on the number of fronts, including a reduction in streaming operating losses this quarter, and I'm very optimistic about our direct-to-consumer business longer term. Combined, our brands, franchises, and robust library are a significant differentiator in this space, And the meteoric subscriber growth we've seen since our launch three years ago only further reinforces that. As I think about our path forward in streaming, we have a number of clear opportunities to further position our DTC business for success. First, as a significant step toward creating a growth business, I'm pleased to announce that we will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+. And while we continue to offer Disney+, Hulu, and ESPN+, as standalone options, this is a logical progression of our DTC offerings that will provide greater opportunities for advertisers while giving bundle subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience. We will begin to roll out this one-app offering by the end of the calendar year, and we look forward to sharing more details in the future. Despite the near-term macro headwinds of the overall marketplace today, the advertising potential of this combined platform is incredibly exciting. And when you drill down into the details, you can see why. Over 40% of our domestic advertising portfolio is addressable, including streaming, which we expect will continue to grow over time. We're also focused on the growth opportunity in programmatic advertising, and we are well positioned to scale as the market improves and audiences continue to grow. We've added more than 1,000 advertisers over the past year and now have 5,000 advertisers across our streaming platforms, with over a third buying advertising programmatically today. In addition, we plan to launch our ad tier on Disney Plus in Europe by the end of this calendar year, which will drive both increased inventory and revenue over the long term. The truth is we have only just begun to scratch the surface of what we can do with advertising on Disney+, and I'm incredibly bullish on our longer-term advertising positioning. Meanwhile, the pricing changes we've already implemented have proven successful, and we plan to set a higher price for our ad-free tier later this year to better reflect the value of our content offerings. As we look to the future, we will continue optimizing our pricing model to reward loyalty and reduce churn, to increase subscriber revenue for the premium ad-free tier, and drive growth of subscribers who opt for the lower-cost ad-supported option. Additionally, I'd like to share a few other key areas where we see opportunities for improvements in our streaming business. First, it's critical we rationalize the volume of content we're creating and what we're spending to produce our content. Second, our legacy platforms enable us to expand our audiences and often augment our potential streaming success, while at the same time allowing us to amortize our content costs across multiple windows. We also need to strike the right balance between our local and global programming as well as our platform and program marketing. Finally, we must continue calibrating our investments in specific markets, looking at the total addressable market and ARPU prospects and evaluating the profitability potential. All of these factors combined are why we are confident that we're on the right path for streaming's long-term profitability. The strength of our content, the one-app experience, and the enormous advertising potential that comes with it rationalizing the volume of the content we make and what we're spending, maximizing windowing opportunities, recalibrating our investments internationally, perfecting our pricing model, and consolidating our global streaming business under the leadership of Disney Entertainment co-chairmen Alan Bergman and Dana Walden. We're doing the essential work now to position our streaming business for sustained growth and success in the future. Turning to our parks, we see this business as a key growth driver for the company. This past quarter, we've been especially pleased with the performance of our parks internationally. We have several international expansions underway that will allow our parks to continue to build capacity and drive longer-term growth. At Disneyland Paris, our Avengers Campus has been a resounding success in its first year. And we have ongoing investment underway there, including a Frozen-inspired land currently in development. Our Zootopia-inspired expansion opens later this year at Shanghai Disney Resort. Arendelle, the World of Frozen expansion, is set to open at Hong Kong Disneyland in the second half of 2023. And Tokyo Disney Resort, which is currently celebrating its 40th anniversary, We'll be opening the new Frozen Kingdom, Rapunzel's Forest, and Peter Pan's Neverland in the coming year. Regarding our domestic parks, we just announced additional changes coming in 2024 that will improve the experience for guests visiting Walt Disney World, including further expanding access for annual pass holders to visit on certain days without reservations, as well as removing the need for an additional reservation for guests with date-based tickets. This is just another example of how we're continuously listening to our guests and finding ways to improve their experiences. And we have a number of other growth and expansion opportunities at our parks, and we're closely evaluating where it makes the most sense to direct future investments. The unyielding popularity of our world-class parks business and our unparalleled content powered by our brands and franchises, is what sets Disney apart. From the very beginning 100 years ago, our timeless stories and characters have been the key to our success and hold a special place in the hearts of generations of fans and families. We're leaning into this across every segment of our business, as illustrated with our strong summer slate of theatrical releases, including Disney's The Little Mermaid, Pixar's Elemental, and Lucasfilm's Indiana Jones and the Dial of Destiny. As we've been looking at the structure of the company these past several months, what's become clear is that there is an enormous opportunity to harness our full potential by increasing alignment and coordination in marketing across our businesses. That's why I named Asad Ayaz our first ever Chief Brand Officer, in addition to his role as president of marketing for our studios. For years, our businesses have been incredibly successful in marketing our content, experiences, and products. And now, with greater integration of our touch points with consumers, especially streaming, we're able to be more efficient and more successful in reaching the right audiences with the right offerings from across our businesses. Disney means so much to so many people around the world. That's a privilege we take seriously. And I know I speak for our terrific chairman, Alan, Dana, Jimmy, and Josh, when I say that our goal is to continue finding innovative new ways that allow guests and audiences to have even deeper connections with us. And that's why I'm so thrilled to be taking this more proactive approach to our brand and marketing work. With that, I will turn things over to Christine.