Disney beat on streaming subs but its financials missed the mark in the second quarter of 2022 due to a hefty $1.023 billion it said it “owned a customer to early terminate license agreements for film and television content delivered in previous years” it wants to use on its direct-to-consumer services.
Revenue of $19.2 billion was up 23% from a year ago but below Wall Street’s forecast — by about $1 billion. Profit fell 48% to $470 million. Earnings per share of 26 cents were down from 50 cents. Excluding items, one being a tax hit, EPS was $1.08, up from 79 cents.
Disney in reporting earnings Wednesday didn’t specify the shows it pulled back, but CFO Christine McCarthy said on a call with Wall Street post-earnings that those license deals were booked as revenue at the time they were made so had be backed out of the numbers.
Disney — and other streamers — have been pulling back content. All six of Marvel’s original series for Netflix, Daredevil, Jessica Jones, Luke Cage, Iron Fist, The Punisher, and The Defenders limited series as well as Marvel’s Agents of S.H.I.E.L.D., which had been streaming exclusively on Netflix, will be moving to Disney+ starting March 16. They will be available across all other Disney+ markets later this year
The Bob Chapek-led company divides its businesses in two giant segments: media/entertainment and parks. Disney Media and Entertainment Distribution (DMED) includes linear networks (domestic and international), streaming and content sales/licensing that wraps in studios. Total DMED sales 9% to $13.6 billion. Operating income fell 32% to $1.9 billion.
Linear networks’ revenue rose 5% to $7 billion; DTC jumped 23% to $4.9 billion; Content/licensing eased 3% to $1.9 billion. Income at linear networks was flat at $2.8 billion. DTC losses widened to $887 million from $290 million. Content income fell 95% to $16 million.
Domestically, broadcast saw profit rise on higher affiliate and advertising revenue at ABC, the latter fueled by timing of the now slap-famous Academy Awards (which aired later, in the fiscal third quarter, last year) and higher rates, partially offset by a decrease in viewership. Cable profit dipped on higher programming and production costs for NFL College Football Playoff, NBA and college basketball.
At parks, sales more than doubled to nearly $6.7 billion from $3.1 billion and the division swung to an operating profit of $1.8 billion compared to a $400 million loss last year. The recovery here continues despite shakiness in Asia, with Shanghai still closed. Domestic parks are a bright spot financially for the company on higher prices and cost-saving new technology around booking, ordering and organizing attendance, plus pent up demand.
The parks biz is one thing that sets Disney apart from streaming rivals like Netflix although strength hasn’t saved DIS stock from being swept into a downdraft that has dragged the sector lower. Disney is the only showbiz stock included in the DJIA 30 and has been about the Dow’s worst performer so far this year. Shares closed today down 2.2% at $105, around their 52-week lows and well off a year-high last fall of nearly $190. At 5:30 ET they’re off another 2.6% in late trading.
A pivot in Wall Street sentiment on streaming has coincided with turmoil in the broader stock market, rattled by stubborn inflation, at 20-year highs, rising interest rates, supply chain disruptions and the Russia-Ukraine war.
The quarterly numbers hit as Disney and Chapek have become a flashpoint in the current cultures wars in the U.S. The CEO’s response to Florida’s so-called “Don’t Say Gay” bill, albeit considered late by some at the company, escalated a conflict with Fla. GOP legislators and Gov. Ron DeSantis, who voted in a law to yank Disney’s right to a special self-governing development district at Walt Disney World. The Reedy Creek Development District mostly allowed the company to avoid red tape for construction or projects at the park so while the financial impact on Disney isn’t clear yet, it apparently wasn’t important enough for any of the analysts on the call to ask about. Reedy Creek wouldn’t be dissolved for a year and half.
Yesterday, Sen. Josh Hawley made some noise introducing a bill that targets Disney’s copyright protection. The legislation would apply only to entertainment and theme park companies with a market capitalization of more than $150 billion. The grandstanding — includes a provision to delay implementation for up to 10 years.
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