Jamie Lumley, Fundamental Analyst at Carbon Arc, breaks down Disney+ price hikes, earnings, and the current status of the 'streaming wars'.
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00:00The happiest place on earth is evolving into one of the more profitable places on earth as well.
00:06Disney smashing earnings in the most recent quarter with profit rising more than 40%.
00:13Will the smiles stay on investors' faces?
00:16Jamie Lunley is an analyst at CarbonArk and he joins us here at the New York Stock Exchange.
00:21Good to see you, my friend.
00:22Congrats on the move to CarbonArk.
00:24What's your single biggest takeaway?
00:26What's your headline from the Disney earnings?
00:29You know, there's a lot to take away, but if I had to boil it down to one thing,
00:32it's that streaming is moving in the right direction.
00:35Let's not forget that it wasn't too long ago that the streaming division alone lost over a billion dollars in a quarter.
00:41And now not only is it profitable, but it continues to build on prior quarters to drive some ongoing strength.
00:46How was that impacted by the price increases, though, for Disney streaming?
00:51You know, that's definitely pricing is huge here because right now as we move into this next stage of maturity
00:56within the streaming types of businesses, driving up that prices and also finding the right path
01:01in a very value conscious environment is very important.
01:03And one thing which Disney's management has talked about a lot here is the fact that they raised prices back in October.
01:09They have that contributing to their top line growth.
01:11They're not seeing as much churn when it comes to subscribers as they thought.
01:15However, it's worth keeping in mind that they are expecting a soft quarter start off 2025.
01:19The guidance for this coming quarter is further subscriber losses.
01:23At CarbonArk, we're an inside exchange.
01:24We look at data.
01:25We provide our customers with data to look at these types of things.
01:28And we can look at things like credit card spend, app downloads and engagement for these types of assets
01:33to try to understand where things are going.
01:35And while there might be some softness right now, it will be really interesting to see how the rest of the quarter shapes up.
01:39The word we heard for a couple of years in the streaming space was consolidation.
01:43Haven't seen a lot of it.
01:45Is it coming?
01:46You know, it's a great question.
01:48And we continue to look at where these different businesses are.
01:50Because right now we have Netflix on kind of this pedestal off doing its own thing.
01:54They're not a legacy business which really needs to try to make some of these big strategic decisions.
01:58But then we have all the players which have one foot in the old traditional media space
02:03and one foot in the streaming space really trying to find still the best path forward here.
02:08Now, we've talked about specifically for Disney,
02:10there's been a lot of discussion around what assets are core to their business, which ones aren't.
02:14It seems right now they're not looking too seriously at, say, divesting some of those legacy brands.
02:19But also, you know, let's not forget, they just got Fubo.
02:21They just had this kind of acquisition business to prop up some of their digital cable.
02:26It will be interesting to see where things go right now.
02:28But it has been a relatively quiet period since we had all the hubbub of Paramount and everything last year.
02:33Is ESPN a winner or a loser for them financially?
02:36And it sounds like you don't expect it to be spun off independently.
02:40So ESPN is fascinating.
02:42And I think what we should really be looking at here is the ESPN flagship product.
02:46They're talking about launching at the back half of 2025.
02:49There are a lot of questions here.
02:51There were particularly questions when Disney was still talking about the venue sports venture
02:55they had with Fox and Warner Brothers Discovery, which, of course, as we know, they scrapped.
03:00They walk away from.
03:01They've had to take a bit of a financial hit because of that.
03:03But what's interesting is this does make their sports strategy more concentrated on ESPN.
03:08Bob Iger has talked about ESPN, how core it is to Disney, how important this business is.
03:12And it does seem that all the talk about divestment has quieted.
03:15The question is what's flagship going to look like?
03:17And what is the reach and kind of value that offering really going to take shape as over the course of this year?
03:22Yeah, I heard Jimmy Pataro speak recently, and he mentioned flagship about a dozen times.
03:26Clearly a priority there at the mothership.
03:29So Disney recently announced $60 billion in park upgrades.
03:32And to most people out there, it's still a company that's all about the parks.
03:36In terms of financial shape prior to those upgrades, how are they doing?
03:41Well, if we think about Disney's parks, the past few years have obviously been tumultuous.
03:45I mean, you look at the closures early on in the pandemic.
03:48We've looked at the resurgence demand after that.
03:51It's kind of hard to do some year-over-year comparisons when we look at when different parks came online and how things are doing.
03:56Most recent performance kind of before that announcement back at end of 23, about those $60 billion in CapEx over the next 10 years,
04:03we've seen relative stability in the U.S. parks.
04:05They're doing fairly well.
04:06Last quarter didn't necessarily light things on fire.
04:09You know, relatively minimal growth there.
04:11But internationally, it continues to be a very bright spot for Disney here.
04:15We've seen very strong growth on the international front.
04:18Disney's talked a lot about Paris, what's going on there.
04:20They've seen some very strong growth.
04:22And then also, parks aside, the cruise business is definitely one area where Disney is continuing to really invest.
04:27Yeah, I wanted to ask about that because their competitors, Carnival, Norwegian, Royal Caribbean, are up 60%, 70%, and 120% in the last 12 months.
04:37How are they keeping up in cruise line?
04:40Well, if we look at Disney's plans, they had Disney Treasure come online at the end of last year.
04:45They have two ships slated to come online this year.
04:47So if we think about the investment, they're really putting their money where their mouth is when it comes to their cruise business and obviously have high expectations there.
04:54The challenge, of course, for Disney as they dramatically increase the volume of their cruise ships,
04:59the number of people that they can have on those cruise ships is making sure that occupancy rates still stay high.
05:04And they can continue to deliver that value at a bigger scale that they've historically focused on with their cruise lines.
05:09Such a diversified company.
05:10We now touch on the box office, which crushed it in 2024, led by, of course, Moana, $2 billion.
05:17Overall in 2024, what were the numbers for Disney at the box office and how can they possibly follow that up?
05:23You know, that's the big question and also the biggest challenge for Disney is seeing the strong performance and then replicating that year after year.
05:30If you think about the 2024 box office, Disney crushed the 2024 box office.
05:34Three of the biggest movies of the year, as you highlighted, Moana 2, did incredibly well.
05:38We had Inside Out 2 earlier in the year.
05:40We had Deadpool and Wolverine doing incredibly strong numbers earlier in the year as well.
05:44And when we think about Disney, one of the data assets we have at CarbonArc is looking at OTT genre streaming performance.
05:51So thinking about what sort of titles, what genres people are looking at.
05:54And historically, three of the strongest ones are animation, action, sci-fi.
05:58If we think what Disney does really well, it's those categories.
06:01So if they can continue to deliver on really performing well in these areas, they can continue to do this in 2025.
06:06But one of the big things which Bob Iger was brought back to do is to bring this consistency back,
06:11be very deliberate with how they're investing in their content structure, both for the box office,
06:16both through traditional linear distribution and streaming.
06:19I'm curious because you mentioned Moana, Inside Out, Deadpool and Wolverine.
06:23The other thing those have in common is they're all franchises.
06:26Do they expect to continue in those franchises or attempting to roll out new ones?
06:31So this is obviously one of the biggest challenges for a big media company like Disney.
06:35They've seen that sequels can be incredibly successful.
06:38And when we think about the biggest movie for them coming this month,
06:41they have the next Captain America, Brave New World coming in just a week.
06:44And right now, obviously Disney owns some of the biggest franchises on the planet.
06:48We think about Marvel, we think about Star Wars, we think about a variety of their different animated franchises.
06:53These historically have been quite successful.
06:55But also it's worth remembering that Marvel hasn't necessarily had the smoothest path post-Endgame.
07:00No.
07:01If we think about the next generation of these movies, not all of them have been home runs.
07:05So Disney right now is trying to strike the right balance.
07:08And Bob Iger is really focused on this and getting their entertainment division on the right track
07:12by having the right balance of continuing to deliver franchises that fans know and love,
07:16while also pushing the ball forward, introducing new content and new stories
07:21and trying to find what the next Inside Out might be.
07:23It was their first year over $5 billion since pre-COVID, so certainly some major progress there.
07:28You mentioned, of course, Bob Iger.
07:30And for years now, we've been wondering about the succession plan.
07:34Where are we?
07:35You know, it's a great question.
07:36I think everyone's on the edge of their seat trying to figure out or listen for what's next.
07:41Because so far, we haven't really heard that much from Disney itself.
07:44It's gotten really quiet, right?
07:45It's been quite quiet.
07:46And really what I think how Disney's approaching this right now is what was Bob Iger's remit?
07:51He's trying to get streaming back to profitability, get the content engine firing on all cylinders
07:56and his latest stint as CEO.
07:58And it seems like things are moving in the right direction on those fronts.
08:01We see profitability in streaming.
08:02We're seeing box office results.
08:04Once the consistency is there and once that kind of ship has been righted,
08:08then we might figure out who the new captain is.
08:10In terms of what I've heard, certainly the entertainment division is so critical
08:14to everything that Disney does.
08:16And the leaders in there, thinking about Dana Walden, for example, could be a good fit.
08:20But again, it's anyone's guess until we hear more from how Disney's thinking about this.
08:23Dana's certainly the name I've heard the most, with the exception of second place Jimmy Pataro.
08:29But does that seem like an underdog?
08:31Well, you know, it's hard to say what exactly is going on behind closed doors in the Magic Kingdom right now.
08:36Certainly we've heard that there are a number of very capable leaders at Disney.
08:39And we've seen the performance and turnaround of some of these segments.
08:42But it's really hard to say.
08:43I think based off of the more recent experience, you know, we look at the JPEG time,
08:48that sort of succession, content really is a thing Disney wants to get right first,
08:53which is why someone with that experience, like a Dana Walden, might be best suited.
08:57But at the same time, as you've mentioned, Disney, one of the most diverse businesses out there.
09:01We have sports. We have entertainment. We have parks.
09:03There's so many different moving pieces here.
09:05And because of that, we shouldn't discount anyone in some of the other divisions.
09:08And because of Bob JPEG, it is just so important for the future of this company to get it right this time.
09:14Final question is, you started with streaming. Let's end with the king of streaming.
09:18How big is Netflix's lead? How do you categorize that?
09:21Well, if we think about the streaming space, what Wall Street has looked at for the last five years are streaming numbers.
09:28Netflix, they're no longer reporting streaming numbers.
09:30They have such a lead that they can just get rid of the metric that Wall Street likes the most
09:35and start to really focus on some of the traditional underlying business fundamentals,
09:39looking at their net income, looking at their revenue growth, et cetera.
09:42If we think about where that business is today, it is a scale which is really surpassing anyone else out there.
09:47Over 300 million subscribers is the most recent earnings.
09:50They're continuing to show double-digit revenue growth.
09:52And also on that operating margin, operating income, high 20 percent.
09:57Disney is targeting 10 percent this year.
09:59Fingers crossed we'll see if they get there.
10:01The rest of the traditional players here are lagging pretty substantially in both getting the profitability
10:05and showing those double-digit numbers.
10:07Netflix is in an envious position.
10:09Obviously, you know you have to defend it once you're up to a spot like that.
10:12They certainly do seem very well poised this year.
10:14Beyond Squid Game, though, am I missing some hits there?
10:17It seems like it's been relatively quiet on that front.
10:21Well, we should also remember that, just not necessarily specific to Netflix,
10:25we're coming off the 2023 writer strikes, really disrupting a lot of the content flow in 2024.
10:30Squid Game 2 obviously did quite well.
10:33And one of the interesting things about Netflix is you don't really know where the next hit's going to come from.
10:37They've taken this content strategy for so long of trying to be something for everybody,
10:41hitting on a lot of different genres.
10:43Talked about before what we've seen in the data for the most important subgenres.
10:48Netflix does all of them.
10:50So they're really taking this broad bet.
10:52And the hit, no one had ever heard of Squid Game before it came out.
10:54We don't know what might be next there.
10:56I didn't see season 2. You?
10:57I got to say I was a fan.
10:58Oh, it was pretty good?
10:59A couple weekends ago. I'd recommend if you have the time.
11:01Okay, I'm in.
11:02Carbon arc analyst Jamie Lumley, good to have you here, my friend.
11:05Thank you so much.