Disney (DIS) – CEO Interview with Morgan Stanley – March 09, 2024
Financial News:
Iger did not hold back in updating shareholders on intra-quarter results. Sometimes these conferences are a waste of time. This specific interview was not. Iger reiterated Disney’s schedule to turn streaming EBIT positive. He said the Parks and Experiences business will enjoy roughly 15% Y/Y EBIT despite tough Walt Disney World 50th Anniversary comps. Finally, he told us that Disney would exceed its $8 billion annual free cash flow guidance. Mic drop.
As Iger told us last quarter, Disney is moving from a period of “fixing to building.” It has carved out unnecessary expenses, re-focused on making elite content and embraced optimal cost monetization once more.
Streaming & Films:
Disney grew Disney+ with too little focus and discipline before having the tech & marketing systems in place to support that growth. The result was higher marketing intensity, poor margins and higher churn than the Netflix “gold standard.” Iger thinks these systems, and their advertising stack, have now been put into place. That, paired with things like the Hulu bundle, is expected to greatly bolster retention and profits for the segment.
The Hulu and Disney+ bundle will fully launch in the coming weeks. Impressively, 50% of Disney’s new subscribers are going with this bundle despite it not yet being fully available. The churn benefits are clear and the subscriber growth impact is too as hit shows like Shogun build bundling demand.
The structure of this bundle is important. Disney intentionally placed Hulu in a separate channel within Disney+ with easy parental controls. This will eliminate the risk of children watching inappropriate content.
Another big piece of a healthy streaming business is simply making better films. Disney had lost its way over the last few years in terms of too much quantity, too little quality and too much focus on influencing culture. It’s back to its roots of “placing creativity at the center of its business” and holding content creators accountable for their blunders/successes. Iger sees the tide turning. He has thrown out low-quality projects in the pipeline and leaned into Disney’s most iconic IP. He thinks the slate through 2026 (including Mufassa, Star Wars, Deadpool & Wolverine, Toy Story, Inside Out 2 & Moana) is poised for great success. We’ll see. The Moana item is an interesting one to note. The original Moana film, which is now 8 years old, was the most streamed film in the USA across all platforms. Consequently, Disney redeveloped its planned Moana TV series as a movie. Great films are fantastic for streaming engagement.
Parks & Experiences:
Disney has the vacant acreage to build 7 new lands and significantly more “IP left to mine” or activate at these parks. It also has a thriving cruise business, which is in growth mode and poised for Asia expansion. Investment returns within these businesses are excellent and Disney is leaning in.
