Shulou(Shulou.com)11/24 Report--

Author | Zu Yang

After a dismal financial report last quarter, Disney experienced a "big change" from the inside out-veteran Robert Iger returned, replaced then-CEO Bob Chapek, fired his crony Daniel, and the company's business structure and strategy will be reoriented.

This morning, Disney released its first financial report since Iger's return, and announced specific adjustment plans for streaming business restructuring, cost control, layoffs and so on. The financial report shows that:

In the first quarter of fiscal year 2023 (that is, the fourth quarter of 2022), Disney's revenue was $23.51 billion, up 8% from the same period last year, higher than the market expectation of $23.37 billion, and realized overall operating profit of $3.043 billion, down 7% from the previous fiscal year. Overall operating profit margin 12.94%; realized net profit of US $1.361 billion, net profit margin of 5.79% Diluted earnings per share were $0.70, up from $0.63 a year earlier.

At the end of the reporting period, Disney + subscriptions were 161.8 million, down 2.4 million from 164.2 million in the previous quarter, and the first decline in subscriptions since Disney + was launched.

During the earnings call, management announced the next developments at Disney: it plans to cut 7000 jobs and cut costs by $5.5 billion ($3 billion in content costs and $2.5 billion in non-content costs). Disney no longer provides an expected target for subscribers and reiterates its goal of streaming profits by 2024.

The financial report is not only a test of Iger's preliminary reforms, but also reveals that Disney's focus has shifted from growth to profitability. After a series of measures to cut costs and increase efficiency, the capital markets immediately gave positive feedback: Disney American shares rose more than 8.1% after the announcement of the results.

Financial report details: theme parks take the lead, streaming media, content sales substantial losses Disney's total revenue composition consists of four parts: cable network, streaming media, content sales / licensing (original film and television entertainment), theme parks and consumer goods derivatives. Let's take a look at the financial details of each division:

In the quarter, revenue from cable networks was $7.293 billion, down 5% from a year earlier, while operating revenue was $1.255 billion, down 16% from the previous fiscal year. According to the financial report, the decline in revenue is due to the decline in advertising revenue, the adverse impact of foreign exchange and the decline in alliance revenue.

As a key development business of Disney, streaming media business still can not get rid of the quagmire of "loss". Revenue in the fourth quarter of 2022 was $5.307 billion, up 13% from a year earlier, while the operating loss rose $500 million to $1.053 billion, and the loss rose 78% from a year earlier, but better than the company's management expected. The financial report shows that the growth of streaming media business is more driven by ESPN +, and the high production cost and low advertising revenue of Disney + and Hulu are the main reasons for streaming media losses.

Content sales / licensing and other income (formerly film and television entertainment) generated $2.46 billion in revenue in the fourth quarter, roughly the same as in the same period last year, but the operating loss increased by $114 million to $212 million. The increase in losses was due to a decrease in TV / SVOD distribution results and a decrease in film distribution and sales.

In the fourth quarter of 2021, Disney released seven films, including "Spider-Man: heroes do not return", "West side Story" and "House full of Magic". In the fourth quarter of 2022, the number of films released dropped sharply, with only "Avatar 2", "Strange World" and "Panther 2" supporting the main income.

Disney Animation "Strange World" failed at the box office and word of mouth, and is expected to lose $100 million combined with production and distribution costs. "Avatar 2" currently grossed $2.177 billion at the global box office, with the Chinese market contributing 1/10. This is the highest-grossing film since the Disney epidemic, but it has limited revenue during the reporting period because it was released in mid-December. Black Panther 2, the final film of Marvel's fourth stage, has continued to rise at the global box office since its release in November, grossing a total of $843 million, pushing the Marvel movie universe a step closer to $30 billion.

However, Black Panther 2, the first Marvel film to return to the mainland after three and a half years, did not perform as well as expected in China. On the one hand, Marvel has been absent in the mainland for a long time, the continuity and emotional stickiness of the audience have been broken, and the "emotional" effect has failed; on the other hand, the audience threshold has increased, and the content of simple special effects is very difficult to move the audience. so Marvel wants to win back the Chinese market, it also needs to innovate at the level of story and narrative structure. In addition, "Black Panther 2" landed on streaming media before it was released in China, which also caused the loss of some Chinese audiences.

The "Avatar 2" theme park business, Disney's "cash cow", continued to grow this quarter, with revenue of $8.776 billion, up 21 per cent year-on-year, and operating revenue of $3.053 billion, up 25 per cent year-on-year. The increase in performance is mainly due to the increase in the number of tourists and ticket revenue. With the continuous liberalization of the domestic epidemic policy and the arrival of the 100th anniversary of Disney, the theme park will continue to grow strongly, in which the contribution of Shanghai Disneyland will gradually become apparent. Since the reopening of Shanghai Disneyland in December last year, the number of Disney searches by tourists from other places has risen by more than 900%.

Whether it is the return of Hollywood blockbusters or the growth of Disney theme parks, the Chinese market still plays an important role in the contribution of these two major businesses. At the same time, Iger's return also indicates that it will focus on the Chinese market. Us entertainment media Deadline reported that a number of Hollywood executives expressed the hope that Iger can repair the relationship between Hollywood and the Chinese market.

In November last year, at the first staff meeting since the handover, Iger announced that he would put creativity first and pursue the company's profit rather than subscribing growth. The Disney + streaming business was a "brilliant stroke" written by Iger when he retired, and the first knife of his reform was also directed at streaming when he returned to his post.

On the one hand, the streaming business was reorganized and the original DMED division (Disney Entertainment and Media Distribution) was disbanded, and the company structure was divided into three components: entertainment (streaming and media business), ESPN (TV network and ESPN + streaming services), and Paradise (theme parks and derivatives). On the other hand, profit has become the core goal of the company, including but not limited to layoffs, reducing content spending, and developing advertising business to reduce costs and increase efficiency.

As the number of streaming users reaches the growth ceiling, it is difficult to maintain its advantage simply by spending money and relying on blood transfusions. Disney has also begun to give up the idea of spending money for growth, cut back on content spending and open up content sales channels.

As of June last year, Disney had a total of 221.1 million streaming subscriptions, surpassing streaming giant Netflix in just five years. Behind the rapid growth in subscriptions, Disney spent $114.4 billion on content from 2018 to 2022, and Disney's streaming business has lost more than $8 billion since the launch of Disney +, according to the Wall Street Journal.

Now, Disney has announced a $3 billion cut in content costs, and Mr Iger said in an earnings call that he would scrutinise all costs on television and films, which Disney has cut by about $1 billion since last quarter.

In addition to the high content cost, in order to enhance the competitiveness of the streaming media business, Disney has increased its growth by shortening the window period for cinema films and launching streaming media exclusively in the past two years. For example, the earlier controversial "Black Widow" chose to release online and offline at the same time; Pixar animation "the Magic of Actuary 2" was released more than half a year earlier; and "Black Panther" was released in China on February 7, but was released on Disney+ on February 1. The exclusive release of high-quality films has indeed brought user growth to streaming media, but it has also sacrificed the real money at the box office and copyright revenue brought by film and television rights.

Before the release of the results, Disney also sent a signal to open content sales channels for sale. Disney is studying the possibility of selling more movies and TV shows, with some content libraries licensed to outsiders to increase revenue, Bloomberg reported.

In addition, when the revenue brought by a single user growth is difficult to cover high investment, overseas streaming media unanimously choose to develop advertising business to increase income. Netflix launched a subscription program with ads in November, and in December, Disney + also launched an advertising version of the service, which costs $7.99 a month for an ad version and $10.99 a month for an ad-free version. Apple is also looking for an advertising sales director for Apple TV + to cover the high cost of content with advertising, Business Insider reports.

The implementation of the advertising subscription program can not only attract new users who want to watch content at a low price, but also win the favor of advertisers. The revenue model of "member + advertising" also increases the certainty of profit to a certain extent. As for the results of the current advertising plan, Disney President Rita Ferro said that more than 100 advertisers, from Mattel to Marriott Hotels, have participated in the new program. However, due to the limited role of advertising during the reporting period, the exact amount of increment will not be answered until the next few quarters.

Although Netflix, Amazon, Disney, Apple and other streaming media are making efforts or trying to develop advertising business, in contrast, Disney advertising still has its constraints. Disney + is mainly based on family fun content, and has more restrictions on advertising categories and duration. And after joining the advertising business, the task of Disney platform is not only to do a good job in content to meet the needs of users, but also to balance the needs of advertisers and user satisfaction, which also puts forward higher requirements for the platform.

At the time of approaching its 100th birthday, Disney is inevitably experiencing "internal and external troubles", internal profit problems, external streaming media competition has entered a white-hot stage, and Iger, as the "helm" who knows Disney best, has also added some certainty to the change in the global streaming media struggle for hegemony.

This article comes from the official account of Wechat: true probe AlphaSeeker (ID:deep_insights), author: true probe

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