DTC, intl segment expected to generate $800 mn operating loss in Q1: Disney

MUMBAI: Global media conglomerate Walt Disney expects its Direct to Consumer (DTC) and international segment to generate about $800 million in operating losses in the first quarter of the fiscal year 2020. The company also expects investment in Disney Plus and Hulu to impact operating income of DTC businesses to the tune of approximately $850 million.

“We expect our Direct to Consumer & International segment to generate about $800 million in operating losses for the quarter. We expect the continued investment in our DTC services, specifically Disney Plus, which will launch in just a few days and the consolidation of Hulu to drive an adverse impact on the year-over-year change in segment operating income of our direct-to-consumer businesses of approximately $850 million,” Disney senior EVP and CFO Christine Mary McCarthy said during the Q4 earnings conference call.

She further stated that the release of Frozen 2 and Sky Walker saga ‘Star Wars, The Rise of Skywalker’ to drive the studio business revenue in Q1. “At the studio, we are very excited about the release of the much-anticipated sequel to Frozen. And the final film in the Sky Walker saga ‘Star Wars, The Rise of Skywalker’. We expect the theatrical performance of these films to be key positive drivers of Studios Q1 results.”

Disney expects the results to be partially offset by an operating loss of about $60 million at the 21CF film studio. “We estimate that 21CF film studio generated about $30 million and operating income during Q1 of fiscal 2019,” she noted.

Christine also stated that a material increase in studio profitability in the first quarter from licensing the legacy Disney Studio library to Disney Plus. “We estimate the acquisition of 21st Century Fox and the impact of taking full operational control of Hulu will have a dilutive impact on our Q1 earnings per share before purchase accounting of about $0.30 per share. We still expect the acquisition to be accretive to EPS before purchase accounting for fiscal 2021.”

The consolidated CapEx in fiscal 2020 will higher by $500 million than in the prior-year. The increase in CapEx is primarily due to increases in DTCI and Corporate.

Disney chairman, CEO Robert Iger said that Disney has spent the last couple of years completely transforming itself. It made strategic acquisitions and organisational changes in order to focus the resources and immense creativity across the entire company on delivering a DTC experience which he said is unlike anything else in the market. “With the launch of Disney Plus, we’re making a huge statement about the future of media and entertainment and our continued ability to thrive in this new era.”

Disney Plus, he said, launches in the US, Canada, and the Netherlands next Tuesday with Australia and New Zealand coming online November 19. “I’m pleased to announce on 31st March, Disney Plus will launch in markets across Western Europe, including the UK, France, Germany, Italy, Spain, a number of other countries in the region. At launch, Disney Plus users will have immediate access to more than 500 movies including all of our beloved titles and more than 7,500 episodes of library television content, including 30 seasons of Simpsons.

Disney Plus collection will include more than 620 movies and more than 10,000 television episodes along with countless shorts and features in its fifth year. “As planned, we first concede this service all creative engines across our Company including the teams of Disney, Pixar, Marvel, Lucasfilm, National Geographic, Disney Channel, and Walt Disney Television studios are focused on creating compelling original content for Disney Plus.”

At launch, the service will offer 10 original movies, specials and series exclusive to the platform, including the Mandalorian. “The first live-action Star Wars series is unlike anything audiences seen before on any platform and it’s a strong indication of the quality in the storytelling that will define Disney Plus. We recently screened a significant portion of the first episode of the Mandalorian compressed and the extremely positive reaction is driving tremendous buzz around this extraordinary series ahead of its debut on Disney Plus. Within a year of launch, the amount of original content on Disney Plus will increase to more than 45 series, specials and movies and will expand to more than 60 original projects per year by year-five.

The launch of Disney Plus will be supported by an unprecedented marketing campaign drawing on every existing connection The Walt Disney Company has with consumers. “It’s a historic effort to raise awareness and drive demand, one that reflects our all-in commitment to the strategic initiatives and our determination to launch big and scale fast. We’re also very pleased with the consumer enthusiasm we’re seeing, as well as the interest from partners like Horizon, which is now offering a free year Disney Plus many of its customers.”

Consumers can directly subscribe to Disney Plus the service for $6.99 a month or $69.99 a year at disneyplus.com, and starting 12th November, they can access the service through a growing variety of partners and platforms including Apple, Google, Microsoft, Sony, and Roku. Disney has also announced additional distribution partnerships with Amazon Fire, Samsung, and LG. Disney Plus will also be available in a bundle with ESPN Plus and ad-supported Hulu for $12.99 a month.

He also said that the acquisition of 21st Century Fox was largely driven by the value it brought to Disney’s overall DTC strategy, adding a number of critical elements including control of Hulu, which opens numerous growth opportunities domestically and internationally. “We also gained a large library of quality film and television content along with additional filmmaking capabilities and the industry’s best TV production studios, great talent, great brands and franchises, like Nat Geo and FX along with Simpsons and Avatar. This collection of IP and talent will contribute significantly to Disney Plus and Hulu and with that in mind, beginning in March, Hulu will become the official streaming home for FX Networks.”

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