Film Studio Helps Disney Beat Earnings Expectations

Fueled by the box office successes of Star Wars: The Rise of Skywalker and Frozen 2, each of which have exceeded $1 billion worldwide, Walt Disney’s quarterly financial results beat the expectations of Wall Street on Tuesday, causing shares of the $262 billion entertainment conglomerate to rise slightly in after-hours trading.

The company reported that it earned $1.53 per share in the first fiscal quarter, while analysts expected it to post $1.43. Revenue was $20.9 billion, while analysts expected $21.1 billion.

Disney disclosed that it had signed up 26.5 million paid subscribers to its streaming platform Disney+. Some analysts were expecting Disney+ to already have 25 million subs, though it launched less than three months ago.

Given its dominance in media and pop culture, Disney’s results are always a noteworthy event, but this time around even more so than usual, given its recent launch of Disney+, the closure of its $71 billion acquisition of the bulk of 21st Century Fox in March and a deadly outbreak of coronavirus in China that some worry will scare visitors away from theme parks. The virus, which has killed more than 400 people thus far, has already caused Disney parks in Hong Kong and Shanghai to temporarily close.

On the company’s quarterly earnings call Tuesday, Iger said that his “heart goes out” to everyone in China impacted by the virus. Disney CFO Christine McCarthy said that the company would take a $175 million hit on its China theme parks, assuming the parks stay closed for two months.

Among the Disney operating segments, the film studio had revenues of $3.76 billion in the quarter, up by more than 100 percent year over year. Media Networks, which includes ESPN, ABC and FX, among other TV channels, had revenues of $7.36 billion, up 24 percent year over year, while the theme parks and experiences unit had revenues of $7.4 billion, up 8 percent year over year.

The company’s direct-to-consumer and international segment, which includes Disney+ and Hulu, saw its revenue skyrocket to $3.99 billion (up from $918 million a year ago), however that unit’s operating losses rose to $693 million due to the costs associated with launching Disney+, consolidating Hulu, and higher losses at ESPN+.

Going forward, Disney expects most near-term subscriber growth at Disney+ to come from international markets, with domestic growth likely to come later this year as the company’s new Marvel shows debut.

Iger had been taking baby steps to more closely align Disney’s streaming properties, though on Friday he appeared to go all in on the strategy when it was revealed that Hulu CEO Randy Freer would step down. On that day, Kevin Mayer, chairman of the DTC and international segment, said the reorganization of Hulu would help Disney focus on “the benefits of scale within and across our portfolio of DTC businesses.”

Disney also recently dropped the word “Fox” from its film studio, now calling it “20th Century Studios,” and Emma Watts has left as president of production there, causing a management void as James Cameron readies the first of multiple sequels to his Avatar film, which earned a then-record $2.79 billion worldwide in 2009. Avengers: Endgame, also from Disney, edged out that record with $2.8 billion last year.

When asked if Disney’s film studio could repeat last year’s stunning $11 billion-plus in global box office revenue, Iger said, “2020 won’t be the same as 2019 for the studio, but we still expect a very strong year.”

He also reaffirmed the company’s commitment to the theatrical window, telling analysts “the theatrical window is working for this company and we have no plans to adjust it for our business.”

Iger added that if certain theater chains are lagging because of decreased traffic, it is up to the film business as a collective to provide a boost and that it “reflects more how other movie companies are positioning their business. We are not the only movie company.”

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