Disney Takes $1B Hit For Ending License Deals To Send Content To Streaming; Quarterly Sales Up, Profit Falls

Walt Disney beat on streaming subs but its financials missed the mark 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 in order for the company to use the content primarily on our 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 was down from 50 cents. Excluding items. EPS was $1.08, up from 79 cents.

Disney didn’t specify which shows created the hit but CFO Christine McCarthy said on a call with Wall Street post earnings that those license deals were booked as revenue when they were made so had be backed out of the numbers when terminated.

The Bob Chapek-led company divides its businesses in two giant segments, media/entertainment and parks. Disney Media and Entertainment Distribution (DMED) – with linear networks (domestic and international), streaming and content sales/licensing, which 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 from $312 million.

Domestically, broadcasting saw profit rise on higher affiliate and advertising revenue at ABC, the later fueled by the timing of the slap-famous Academy Awards (which aired later, in the fiscal third quarter, last year) and higher rates, partially offset by a decrease in viewership and, to a lesser extent, fewer units delivered. The cable dip came from 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.

Parks, Experiences and Products reported (est 6.3b) down sequentially from the previous quarter, 7.2 which is seasonally stronger, but up form 7.2 a year ago. The recovery continues and despite some shakiness at international parks – and paucity of foreign visitors at U.S. parks – the division is a massive bright spot financially for the company because of higher prices and cost-saving new technology around booking, ordering and organizing attendance.

The parks business sets Disney apart from streaming rivals like Netflix, although its rise hasn’t saved DIS stock from being swept into a downdraft that has dragged the sector lower stocks lower. Disney is the only showbiz stock included in the DJIA 30 and has been the Dow’s worst performer so far this year. They  close at down 2.2%, basically at 52-week lows and well down from a year high last fall of nearly $190.

Wall Street sentiment on streaming has pivoted a bit  on streaming and the broader stock market has been really rattled by stubborn inflation, at 20-year highs, and rising interest rates.

The numbers come as Disney and CEO Bob Chapek have become a flashpoint in the current cultures wars in the U.S. His 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 to yank Disney’s right to a special self-governing development district on Walt Disney World land. The Reedy Creek Development District allowed the company to avoid red tape for construction or projects at the park. The financial impact on Disney isn’t clear yet. Reedy Creek wouldn’t be dissolved for a year and half and it would also lower costs for Disney as services it pays for would be transferred to the two Florida counties that overlap WDW land.

Then 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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