The Walt Disney Company has reported earnings for its second fiscal quarter ended March 28th 2020. The entertainment giant saw its operating income for the three months drop 37 per cent to $2.4 billion (€2.2bn) after it was forced to shutter its theme parks, cancel cruises and delay future productions.

Conversely, Disney+, the company’s SVoD platfom, has benefitted from the global lockdowns. The service had 33.5 million paid subscribers by the end of March and passed the 50 million mark in April as more people stayed home and signed up.

“While the Covid-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position,” said Bob Chapek, CEO of The Walt Disney Company. “Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November.”

Cable Networks

Cable Networks revenues for the quarter increased 17 per cent to $4.4 billion and operating income increased 1 per cent to $1.8 billion. The increase in operating income was due to the consolidation of TFCF businesses (primarily the FX and National Geographic networks), partially offset by a decrease at ESPN, and to a lesser extent, the Domestic Disney Channels and Freeform. The decrease at ESPN was due to higher programming and production costs and lower advertising revenue, partially offset by higher affiliate revenue. Higher programming and production costs were driven by rate increases for College Football Playoffs and other college sports as well as costs for the ACC 3 Network, which launched in August 2019. The decrease in advertising revenue was due to lower average viewership, partially offset by higher rates.

Lower average viewership was driven by the cancellation of major sporting events beginning in mid-March as a result of Covid-19. Affiliate revenue growth was due to an increase in contractual rates, partially offset by a decrease in subscribers. The decrease in subscribers was net of the impact of the ACC Network launch.

Lower Disney Channel results were due to a decrease in affiliate revenue and higher marketing costs. Lower affiliate revenue reflected a decrease in subscribers, partially offset by an increase in contractual rates. The decrease at Freeform was due to higher cost programming, lower advertising revenue and higher marketing cost, partially offset by higher income from programme sales.

The decrease in advertising revenue was driven by lower impressions, partially offset by an increase in rates.

Broadcasting revenues

Broadcasting revenues for the quarter increased 4 per cent  to $2.8 billion and operating income increased 53 per cent  to $397 million. The increase in operating income was due to the consolidation of TFCF, largely reflecting programme sales, and to a lesser extent, an increase at legacy operations. The increase at legacy operations was due to higher affiliate revenue driven by higher rates and lower network programming and production costs, partially offset by lower ABC Studios programme sales and higher network marketing costs. The decrease in network programming and production costs was due to a timing benefit from new accounting guidance, partially offset by more hours of higher cost specials and a contractual rate increase for The Academy Awards in the current quarter.

The decrease in programme sales was driven by the comparison to prior-year sales of Jessica Jones and How to Get Away with Murder.

Studio Entertainment

Studio Entertainment revenues for the quarter increased 18 per cent to $2.5 billion and segment operating income decreased 8 per cent to $466 million. The decrease in operating income was due to lower results at legacy operations, partially offset by the consolidation of the TFCF businesses. The decrease at legacy operations was due to higher film impairments and decreases in theatrical distribution and stage play results, partially offset by an increase from TV/SVoD distribution. Theatrical distribution in the quarter was negatively impacted by Covid-19 as theatres closed domestically beginning in mid-March and internationally at various times beginning late January. Theatrical distribution results in the quarter included an increase in bad debt expense and also reflected an adverse impact from Covid-19 on the performance of Onward, which was released domestically on March 6th.

Other significant titles in the current quarter included Frozen II and Star Wars: The Rise of Skywalker compared to Captain Marvel, Mary Poppins Returns and Dumbo in the prior-year quarter. Stage play results in the quarter were negatively impacted as live entertainment theaters were also closed.

Growth in TV/SVoD distribution results was due to sales of content to Disney+ driven by The Lion King, Toy Story 4, Frozen II and Aladdin. This was partially offset by a decrease in sales to third parties in the pay and free television windows.

The benefit from the TFCF businesses reflected income from TV/SVoD distribution, partially offset by a loss from theatrical distribution and general and administrative costs. TFCF theatrical releases in the current quarter included Call of the Wild and Downhill.

Direct-to-Consumer & International

Direct-to-Consumer & International revenues for the quarter increased from $1.1 billion to $4.1 billion and segment operating loss increased from $385 million to $812 million. The increase in operating loss was due to costs associated with the launch of Disney+ and the consolidation of Hulu. Results for the quarter also reflected a benefit from the inclusion of the TFCF businesses due to income at the international channels, including Star.

The average monthly revenue per paid subscriber for ESPN+ decreased from $5.13 to $4.24 due to the introduction of a bundled subscription package in the US of Disney+, ESPN+ and Hulu beginning in November 2019. The bundled offering has a lower retail price than the aggregate standalone retail prices of the individual services.

The average monthly revenue per paid subscriber for the Hulu SVoD Only service decreased from $12.73 to $12.06 driven by lower retail pricing. The average monthly revenue per paid subscriber for the Hulu Live TV + SVoD service increased from $52.58 to $67.75 due to higher retail pricing.

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