The Mouse House may come out of the pandemic stronger than it went into it.
August 16, 2021
Walt Disney (NYSE: DIS) had an impressive quarter. The company returned to an operating profit in its theme parks division (though that number includes a resurgence in consumer goods which are reported as part of that segment) and continued success in its streaming division.
Disney+ has basically doubled in size year-over and added roughly 13 million new paying customer since the previous quarter. The Mouse House also reported that Hulu has become profitable while sharing strong growth numbers for ESPN+.
It was mostly good news for the company though CEO Bob Chapek did not have to address Scarlett Johansson’s lawsuit against the company over her compensation for “Black Widow.” Matt Cochrane joined Dan Kline on August 13 edition edition of “7investing Now” to take a look at the numbers and talk about what’s next for the Disney empire.
A full transcript follows the video.
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Dan Kline: I’m being joined today by Matt Cochrane. And Matt, we are going to get to talk about one of our favorite subjects. That is, of course, European soccer. No, no, it is not. It is Walt Disney (NYSE: DIS) earnings. That is a little throwback to last Friday’s episode. Matt let’s get right into it. Because we’ve got a lot to unpack here. We’re going to share some personal experience with Disney. We are also going to take your questions and comments. So feel free to ask them in the chat. In theory, wherever you’re watching this, you should be able to comment but Matt, why don’t you give us the top line highlights of Walt Disney earnings here?
Matt Cochrane: Yeah, sure. So like the company brought in $17 billion in sales. That’s up 45% from last year. Earnings was almost a billion dollars, just under, and that’s a significant improvement from last year when they, when they posted a $5 billion loss. Now of course, Dan, this is like the the repeating theme here. This is all going back to COVID. Right? So I don’t look too much at the year over year comparables.
Dan Kline: No. So the Disney theme parks a year ago were largely closed or operated at very limited capacities. We’re going to talk theme parks, but we’re going to talk streaming first and Matt I shared this on Twitter today. I actually think Disney is the sneaky biggest winner of the pandemic, despite the fact that when they lost $4.8 billion, because they couldn’t operate their theme parks that looked bad.
But I think Disney+ growth accelerated massively. Let me share some of those numbers. They’re are 116 million Disney+ subscribers. That’s up from 57.5 million a year ago, a bit earlier, that basically that is doubled. And that’s up about 13 million from just a quarter ago. Matt, before we get into Hulu Plus and ESPN+ and I don’t know Mickey Mouse plus, Pluto plus, goofy. Lots of streaming services here. Hotstar. What are your thoughts on these numbers? Cause they’re just unbelievable, as far as I’m concerned?
Matt Cochrane: Yeah, no, they’re great numbers, Dan, and I’m a happy customer of the service. Right. And I can’t believe how well they’re doing with these shows the rolling out with Marvel. I would love to see the pace of Star Wars material increase. But the Marvel shows, the movies that they’re rolling out the Pixar films, I think they’re doing a fantastic job with the service. It’s honestly, I don’t think it’s too much of a surprise for you either, Dan. I mean, these are great numbers. But are you surprised that it’s this successful? Because I don’t think I am.
Dan Kline: No, I’m not. I’m surprised maybe at the pace of it. But here’s the reality. If you are a Marvel fan, you have to watch “Loki” and “Falcon and Winter Soldier” and you want to basically whatever Disney has been releasing has been my appointment Friday night viewing. So my wife goes to bed. I watched the new episode of “The Mandalorian” or “The Bad Batch” or “Loki” or whatever it is. And I’ve talked about this a lot. And I think this is an advantage that Disney, it doesn’t get talked about enough. When they put something out whether it’s Loki, which is a tentpole show, everyone in the Marvel Universe is going to watch that, or “The Mandalorian,” which is an event show that goes beyond Star Wars, or it’s something like “The Bad Batch” or the Mighty Ducks show.
Now those shows aren’t going to be the massive Zeitgeist hits. But if you’re a Star Wars fan, you’re going to watch “The Bad Batch,” which is a cartoon spinoff from the Clone Wars. If you have nostalgia for the Mighty Ducks, and have kids, and a lot of Disney fans or kids, you’re going to watch that series. Every single show they put out is a hit. Quick, Matt name me a current hit on Netflix?
Matt Cochrane: I don’t know. So here’s the here’s the deal, Dan, we’ve gotten rid of Netflix in the last three months, and we’re gonna be back on I’m not saying we’ve left it forever. But Netflix is like a service now that we feel like we can come in and out of throughout the year, to try to save a little bit of money. Um, now I would say about Disney+, like to your point, right, like so my family we’re starting to watch the “Turner and Hooch” show.
We’re watching “The Mysterious Benedict Society” show, and the Marvel shows, that’s a must view for all six members of my family. And it’s not just like you said, you said Marvel fans. It’s a must watch for Marvel fans. But they’re growing that base. It seems like monthly, like there’s more and more Marvel fans out there than there used to be because of the phenomenal success of MCU the Marvel Cinematic Universe. I mean, they’ve just done such a great great job with it with that intellectual property.
Dan Kline: Yeah, and to different points. All of these shows provide an entry into the community. Now, do you have to have watched all the Marvel movies to follow say “Wanda/Vision.” You really don’t, that could have been a starting point for you. “Falcon and Winter Soldier” was a little more a mesh in the universe. “Loki: worked just fine as a standalone show; “The Mandalorian” does not rely on your knowledge of Star Wars for you to be a fan.
I think that’s really important. And I don’t want to pick on Netflix here. But I think it is very important to know that Disney doesn’t take gamble’s, there’s no guessing here, there’s a big content spend. You mentioned ramping up Star Wars shows, I think they have something like 13 Star Wars shows, in some form of development, many of them slated to go, would have come sooner had it not been for the pandemic.
But Matt, let’s get into some of the deeper numbers here. So we talked about that it’s 116 million Disney+ members, ESPN+ is at 14.9 million. And Hulu is at 42.8 million. We’ll come back for that. That is a massive increase for Hulu. Revenue is up 57% to $4.3 billion. Average monthly revenue for per subscriber for ESPN+, and Hulu went up slightly went down a little bit for Disney+, but that’s largely because of Hotstar. Hotstar is their India and Indonesia product that that’s sold at a cheaper price. And it kind of has to be based on the the economics of that part of the world. These numbers are all astounding. But Matt, did you want to talk about Hulu, cause that’s a sneaky successful company that really doesn’t get talked about.
Matt Cochrane: I definitely want to talk about Hulu. But one more point about Disney+, like they’re still rolling out internationally. So like this calendar year, they’re about to have a big rollout in Japan, they’re gonna roll out in Taiwan, South Korea, in Southeast Asia, you have a lot of, Disney has a fan base there.
And you’re going to see that next year, they’re rolling out in Eastern Europe, the Middle East and South Africa. So they’re not done rolling this out internationally. So you’re going to continue to see these numbers go up just from adding these huge geographic territories where there is, there are fans of Disney. So like the last point about Disney+, I just want to make it’s like it’s not it’s not global yet. So you’re still gonna see a lot of user base add just from these new territories being added.
Dan Kline: Yeah. And let me give you the total addressable market. Before I do that, remember, we would love your questions and comments about Disney. And feel free to ask us other stock market questions which we could get to at the end of the segment.
So this is a case where Bob Chapek, he is the CEO of Disney. He says they can get to between 230 million and 260 million subscribers by 2024. Matt, Chapek has a traditionally soft selled the numbers. I’m going to argue that they get to 230 million by early 2023. I think that’s realistic. I think the reality is as they add these territories, and they have not saturated the US there is significant room to grow. And every family that has kids when those kids hit I don’t know if the age is four or six or somewhere around there.
Matt Cochrane: It’s two
Dan Kline: Is it two?
Matt Cochrane: Oh yeah, it’s two
Dan Kline: The movie “Cars” on DVD. So this ages me a little bit was my babysitter for like 18 months like my son watch it like 6,000 times. That’s something that’s really underrated and underplayed with Disney.
But let’s talk a little bit about the Hulu numbers. Now. Hulu includes two things. It’s regular Hulu, which is part of the Disney bundle. It’s also Hulu live, but they don’t really break out those numbers. Hulu has nearly doubled in subscribers since Disney bought out Comcast (NASDAQ: CMCSA) and Time Warner, good move Comcast and Time Warner letting them have that. The growth in subscription and advertising revenue led to Hulu being profitable this quarter, Disney+, Netflix (NASDAQ: NFLX), Hulu, those might be the only profitable streaming services, maybe Discovery+ but probably just those. They got more impressions for ads and higher rates. Matt, would you like to comment here? Because these numbers are in my opinion, astounding?
Matt Cochrane: Yes, and one of those things about the higher advertising rates, like when they asked the CFO like why they were going up, she said a lot of addressable advertising and a significant ramp up and the dynamic ad insertion technology that we have within Hulu Live. That’s targeted advertising. We’ve always talked about this, like when you own the consumer experience, when you’re buying directly from the company, they’re going to have more customer data.
And Disney is using this to drive like addressable advertising. And we’ve seen like these connected advertising companies do really, really well the last few years. A lot of that comes from Hulu. And a lot of that comes from now Disney owns that experience. They’re going to use that data, they’re going to leverage that data though increase these advertising revenues and and you’re seeing that and Hulu being profitable this quarter, doubling their members like you pointed out Dan, since they bought out Time Warner and Comcast. Like that’s just like, that’s that’s huge because Hulu is the I mean, I don’t know about you, Dan, but this is not part of my bull thesis for Disney. Hulu is like a footnote, when I talk about Disney.
So for Hulu to be profitable driving profits, and being like a any kind of value add to the Disney bundle you have here in the US and Canada, that that’s pretty big, when you compare the average average revenue per user for Hulu now that’s $13.15. That’s not too far behind Netflix’s average revenue per user for its US and Canadian subscribers. So I just think that’s like this, could be a very underrated story right now. Growing its user base like this.
Dan Kline: Not only is it not part of my Disney thesis, it’s not something I remember having, except when I like, I screw up my DVR of “Saturday Night Live” and then realize, oh, wait “Saturday Night Live” airs on Hulu a couple of days later. The negative there is the reruns of “Saturday Night Live” do not include the musical performances. I’m going to assume that’s a right issue, a rights issue, but I find it very, very frustrating.
Matt Cochrane: I wanted to talk to you about that because I thought you might be the guy to talk to you. I have a subscription to Hulu. I got it last year on Black Friday, it’s $2 a month. I’ve watched it like five times. Are there users like me who are gonna drop, like I know the average revenue per user is is much higher than $2 a month. But like what are people watching on Hulu because I don’t really use it.
Dan Kline: So Hulu is a great backstop if you’ve cut the cord. I don’t have the option of cutting the cord because I live in an HOA that pays for my cable. So why wouldn’t I take cable that I’m already paying for. But if you don’t have cable, an awful lot of NBC shows an awful lot of of ABC and Fox (NASDAQ: FOX) shows air on Hulu 24 hours later. So if you’re a Simpsons fan and want to watch Sunday’s episode, you wait till Monday night and you watch it. If you’re a Saturday live fan, you wait till Sunday night and you watch it. I think that’s a massive growth base.
Because if you are someone who cuts the cord, but doesn’t want to pay for a, let’s call it $35 to $70 streaming service and that would be something like, Sling at about $35 to start or something like Hulu Live or YouTube Live at in the $60’s. Then Hulu fills a lot of those needs at a very, very low price. I actually think as part of the bundle. I don’t think I’ve ever turned on ESPN+ i think that’s fair to say. I think I got it thinking maybe I would watch Katie Nolan show and then they canceled Katie Nolan show.
That being said at some point, I’m sure there’ll be a UFC pay per view or something that like, Matt comes over and we watch the fights and it’s in it’s worth having. So I think these are going to become like useful for some people and just kind of background services for others. I also think Hulu is going to do more Marvel content and they’re going to do maybe more R-Rated Marvel content, maybe more tween like, YA Marvel content? They’ve talked about that quite a bit. So there are some levers they haven’t pulled and I think they’re going to pull those.
As we pivot off of Disney Plus, I want to take a question from Stock Investor. Before we do that our very own Maxx Chatsko, I promise you, we will take your question and talk about what you’re asking later on in the program. But JT Street if you want to bring up Stock Investor’s comment, “Disney built an in house Netflix in two years? Do you think they will take the number one spot over time”? I think we’re going to have a co-number one, I don’t think it’s going to be particularly clear who the leader is in terms of subscribers, that said, Disney+ is going to be insanely more profitable than Netflix. Matt, your thoughts here?
Matt Cochrane: Uh, yeah, I mean, it still has a way to go to catch Netflix, just for the US-Canadian subscriber base, not talking to global base, but like, which it never will, I don’t think but like, just for the US-Canadian subscribers, like I mean, he still has a ways to go. So let’s, let’s not get ahead of ourselves. I just think like Disney shareholders should be happy that it’s profitable. It’s growing. Disney seems like they’re doing a good job with it looks like a very good idea to buy out Comcast and Time Warner a few years ago. And so just right now, let’s just be happy with that. And let’s not get ahead of ourselves. We’ll see. We’ll see how that we’ll see how that goes.
Dan Kline: Do you think Bob Chapek drunk texts, people over at Comcast just making fun of them? Because I cannot imagine selling this stake and I’m teasing a little bit. Bob Chapek of course would never do that. But like, you own something and could have been a passive investor had a platform for your content and just collected a check. And instead you’re sold out because you were worried about cost. It’s gonna go down as historically one of the worst deals of all times.
Let’s take the comment from Max Lucas before we pivot into theme parks if you want to bring that up, JT, we would appreciate it. “I watch Hulu, I watch more Hulu than Netflix. Like you said Dan for the cable shows the day after”. Yeah, I have Netflix because T-Mobile (NASDAQ: TMUS) pays for most of it and my wife and son I actually watch a lot of Netflix. I don’t watch any Netflix. I’m gonna be on a plane. So I’m going to look on Netflix, because the downloadable aspect of that is very valuable.
But like Matt, I would cycle in Netflix, like one month, every four months. If it was just up to me, it’s not that they don’t have shows, I want to watch. But once they killed the Marvel shows, and obviously that was for licensing reasons, it no longer became appointment viewing for me. And some things like they have, say, like “The Flash”, about six months after it airs on TV. I can watch it with commercials on the CW app for free. And I do that because like during commercials, I answer my Slack. Like it’s not, it’s not that big a deal. Again, we’re going to take your questions and comments as we go, Matt, go ahead. I’ll let you weigh in on this. And then we’ll pivot to theme parks here
Matt Cochrane: Look, just Netflix saying Don’t you think it hurts them like they think drop all their shows at once. So I love “Cobra Kai,” I love “Stranger Things.” I really enjoy a few other shows on Netflix. But they dropped all the shows that one so I can go through them in a week. If they stretch Cobra Kai season out over three months, I’m subscribing those three months, and then you do Stranger Things after that. That’s the next three months. I feel like I get what Netflix is saying that this is for the customer experience. And they just want to make the customers happy. But I believe no, it’s already hurting them. It will soon
Dan Kline: It’s massively hurting them. This is a gigantic mistake. They’re doing something for 2% of their audience. And they’re sacrificing. We’ve talked about this a lot. So I won’t belabor it. When Stranger Things comes out it’s a 72 hour news story. And you never know when you could talk to your friends about it. Like I haven’t watched “Cobra Kai, but if I did, I’d be hesitant to bring it up to you. Because who knows if you’ve watched it, maybe I watched it. Watch it right. But maybe I watched every episode in three weeks, and maybe it took you 10 weeks.
Matt Cochrane: 10 days, but yeah, sure.
Dan Kline: With the Disney shows, every episode of “Loki” gets like an Entertainment Weekly article, a Ringer podcast, 17 articles on comicbook.com it becomes a major news story. They’re covered, like sporting events. I don’t understand why Netflix does this. I get it, you’re catering to a small percentage of your audience.
But here’s the reality. If I want to binge watch something that comes out one episode a week for 10 weeks, here’s an idea, wait 10 weeks and then binge watch it then. This is backwards thinking it’s a mistake, and they will die on that sword. Now they won’t die. Netflix is incredibly successful, they will remain incredibly successful. But they could be more incredibly successful if they did it that way.
But let’s talk theme parks and I’m going to talk a little personal experience later on. But let’s just get some of the numbers. Revenue in the segment jumped 308% to $4.3 billion. Again, when you were closed in the previous quarter, the percentages don’t matter that much. Attendance is up, operating income was $356 million. That compares to a loss of $1.87 billion. Domestic parks basically made a tiny bit of operating income, couple million dollars, international parks posted a loss of $210 million. But Matt, this is a massive turnaround, this shows essentially Disney is back open for business at its theme parks. But there is going to be a ramp up and we’ll talk about that in a little bit.
Matt Cochrane: Well ya, that’s actually what I was gonna say, Dan. I think I think the really big story, yes. We knew, like one customers are rushing back to the parks, they want to get out. And this Delta variant is a wild card. And I don’t I don’t think we still know how this ends. But people want to be out and about and people want to be enjoying in person experiences. Again, we’re tired of being cooped up in our homes. I think that’s a very safe statement to say. Now how the Delta variant effects that are not to like right now they’re saying like, even right now in the quarter, with the current news about the Delta variant out there, the parks are at capacity, and they’ve been increasing that capacity.
And I think the really big story, Dan, is that they expect the parks to be fully staffed by the end of this calendar year and increasing capacities as they ramp up the staffing. Now they said they have to ramp up staffing ahead of increasing capacities. So they might be like throwing out just hypothetical numbers. But if they’re 80% staffed, they might be at 60% capacity, things like that. But like the more they staff, all the events and activities and rides and shows and things like that, the more they can open up capacity. And I think that’s a really big story that by the end of this calendar year, obviously with a Delta variant of being that big, huge wildcard, they expect to be at a, they could be fully staffed and with a higher in park capacity.
Dan Kline: Yeah, so I want to go back and give a little bit of nuance first. So I talked about how the operating income for this segment was $356 million. It’s important to remember that parks also includes consumer goods. So the actual profit they made in this came largely from consumer goods. I mentioned that they lost money in the overseas parks. They eked out a $2 million profit in the U.S.
But these are massive turnaround numbers. So when you mentioned capacity and staffing, here’s a couple of issues that are weighing on this. Right now, rental cars are essentially zero out of Orlando, they’re incredibly expensive. What does that mean? Disney is going to be an attractive vacation, because you can stay on property and not need to get into a car. The problem is Disney closed down most of its hotels.
And since the NBA bubble, has been bringing them back up, and that requires training staff on new procedures, hiring staff in a very competitive market, Taco Bell in the Orlando area is offering a $600 starting bonus, and $15 starting wages. So that puts Disney in a very competitive market. They also maybe didn’t handle how they laid off workers all that well, they probably could have kept people much more at the ready to come back.
So they have to bring hotel capacity back online, they have to do things like you can’t just, bring back, your orchestral show, your orchestra has to practice and you have to hire musicians. So a lot of the high capacity shows haven’t been operating partially because you don’t want to cram people together. And certainly they’re enforcing mask rules inside, which Universal Studios is not. So Disney has been very proactive on sort of sticking with what doctors are telling them and keeping the parks feeling safe. Which I’ve been there a bunch of times, they’ve done a really good job with that.
But once they can bring up these high capacity shows, ramp up more theatres, turn on more transportation, the monorail just turned back on. So you no longer have to take the ferry boat to get to get to Disney World, your ability to get to Epcot from the ticket and transportation center. Which is the main parking lot for both instead of going to the Epcot parking lot that’s been turned back on.
There’s a lot of moving pieces here, and Disney has been full. They don’t really tell you what the capacity is, but I’m gonna say it’s 50% or 60%. I’ve been there. And they’ve done a really good job in that lines are long, but they’re better than pre-pandemic lines. There’s absolutely some problems. I’ve talked about the hour it took me to get a cup of coffee at Starbucks (NASDAQ: SBUX), which is partially a fault of the people in front of me who’d never been to Starbucks before apparently, and partially a problem of staffing. There were simply not as many people there as I would have expected.
But I am incredibly encouraged that the holiday season for Disney, I think is going to be close to, if not, full capacity. They also of the 50th anniversary, they have a number of theme park openings. Ratatouille is testing at Epcot right now. The space restaurant is test testing, they will have the Guardians of the Galaxy roller coaster at Epcot, in the next 12 months, they will have the Tron Lightcycle, which is a it exists and I want to say Tokyo Disney. And that’s been an incredibly well reviewed ride.
They have a lot of stuff that normally would be a draw. Star Wars land is still incredibly new. And Rise of the Resistance is inarguably, don’t argue with me, the best theme park ride anywhere, because it’s four separate rides in one. Each one of them would be a pretty good ride. So I am bullish on the theme parks. Matt, I will give you the last word before we move on to other things and more of your questions.
Matt Cochrane: Well, the thing that also another thing from the conference call Dan, that stuck out. And to your point about Disney being a sneaky COVID-19 winter is that gave them an opportunity to retool their app. So they talked a lot about the Disney Genie on their conference call. And that’s going to be a new service. And its goal is to be a user friendly app to create a better, more personalized customer experience for guests, putting them in control and providing even greater flexibility and choice.
And it sounds like from like when they were answering questions about this. That they’re even going to show them like depending on what day it is, and like where the lines are shorter than other attractions like to like guide guests to those lines like hey, right now it’s a it’s a 15 minute wait at Thunder Mountain but Jungle Cruise, it’s only a 20 minute wait, or that’s a lie because Jungle Cruise the weight is never that short. So it looks like they said it can increase monetization of guests. So I don’t know what that means like, but hey, it’s a hot day out, there’s an ice cream stand 50 feet around this corner. If you go that way, like things like that, I guess. It gave them a chance to retool this app.
Dan Kline: The existing Disney app is terrible. It is a power hog and the park has very few places to charge your phone. So that’s a problem, I always have to bring an extra battery. Here’s what it’s gonna be. It’s gonna be everything from unlocking your door, which you can do in the in the current Disney app in your hotel room to virtual queues. And they’re not saying virtual queues because people don’t like the current way they’re doing a virtual queue for Rise of the Resistance because of the capacity of that ride.
But it’s going to be something like you say, okay, hey, I’m going to this park tomorrow. And here are the five rides I want to do. Here are the seven hours I’m going to be there. And it tells you hey, come back to the line at this point. And you might not have no line but instead of standing in line outside for two hours before you even get in, you might be in just the normal inside queue, which is often part of the ride,
You’re going to be in that for 20-30 minutes, it’s going to manage people, it’s going to say things like, hey, if you want to eat lunch at two o’clock, instead of your one o’clock reservation, we’ll give you 5% back to manage capacity. It’s a lot like what Starbucks does with its app where it can say, hey, you want to come in for buy-one-get-one frappuccinos at four o’clock, because the store you go to is kind of quiet at that point. It’s going to be very intuitive, it’s going to help move people around.
Now, a lot of this functionality on a sort of do it yourself basis exists in third party apps, I use one that shows me line times which are much more accurate than the ones in the Disney app, it sort of works like Waze where it’s user reported. I think Disney is going to get very sophisticated in moving you around and figuring out ways to incentivize you, to do what those of us who are in the know already do. Like I know if it rains, go have something to eat near the ride. You want to ride after it rains, because the second the ride reopens, if it’s one that closes due to weather, you should be able to walk on that ride.
There’s a lot of things they can do digitally, there’s going to be AI hear. This is also going to affect pricing, or something like I’m in Star Wars land. And I’ve expressed that I want to do the “build a lightsaber”. But there were no appointments. And it’ll say, hey, Dan, just got off the Millenium Falcon, someone didn’t show up. Would you like to do this and here’s a 5% coupon to do it.
It’s going to be it’s something they need to invest in. It’s something Universal Studios has actually done a little bit better, though, again, I don’t love their virtual queue because you can get shut out of things you want to ride. Whereas there should always be the option to wait in line if your whole goal was to ride Rise of the Resistance. There should be an ability to do that. I do think that is problematic. But I am very bullish on technology. I’m very bullish on the parks.
I want to take the next last comment from Daniel Delgado, because he brings up something that’s at least worth considering. It’s the Delta variant one Yep, “the Delta variant could shut down Disney World in Orlando”. No, it won’t. I would be more worried about about Disneyland in California if we have a flare up. But I think the reality is, is Disney is assured it will make operational changes, but it’s going to stay open. And Matt feel free to weigh in here. But I don’t actually think barring a major change in the trajectory of COVID that we’re going to see that type of shutdown.
Matt Cochrane: Things would have to get really bad to see Disney World shut down. You might see some of their European parks or some of their aging parks, and like you said, Disneyland. Disney World in Florida, I think if they shut down Disney World again, that things have gotten really, really bad. Knock on wood, I don’t see things getting that bad.
Dan Kline: So I want to talk about sort of the one negative facing Disney right now. And that’s the Scarlett Johansson lawsuit. So for those of you who don’t know, Scarlett Johansson, the star of Black Widow sued Disney over compensation for that movie. Basically what she said is, hey, I had a contract that guaranteed me a full theatrical release. You released it on Disney+ simultaneously for $30 and I did not get paid for that. And Bob Chapek the CEO, in my opinion, handled it terribly. He basically came out and said, Well, you’ve already been paid $20 million for it, which is an attempt to shame her.
And here’s the reality, if her contract gives her a percentage of the gross or bonuses or whatever it is, the fact that she’s already made $20 million is not relevant. If the contract says, look, we all might think it’s not fair that athletes and movie stars make $10’s of millions of dollars, but that was clearly her contract. And that’s not what happened.
This should have been handled financially because honestly, would it have been worth it to Disney to hand her $20 more million or $50 more million or whatever the numbers should have been. Or to go to arbitration quietly over this to figure it out. Rather than publicly shame it’s only leading lady superhero star? Matt your thoughts on this one and then we can we can also share Maxx Chatsko’s comment on it.
Matt Cochrane: Well look, yeah, I don’t think Disney handled it well. They should have definitely handled it better. And the optics that it’s like you pointed out, it is one of their few female leads in the Marvel Universe, makes it that much worse. Look that being said, is this like a big story or a big a big deal for Disney shareholders? No, it’s not. So it’s bad PR. they handled it wrong. Hopefully they learned their lesson from that. But, yes, they should have definitely paid her right away or I don’t I don’t understand their thinking there either. It was like a no brainer, but horrible PR move but like for Disney shareholders this is mostly noise.
Dan Kline: Yeah, and if you want to share Maxx’s comment, so Maxx asked, our very own 7investing lead advisor Maxx Chatsko says, “Does the recent PR fail at Disney over Black Widow create an opportunity for other streaming services? Or is it all about the IP”? So the only opportunity here is that Scarlett Johansson is more available because they did cancel a movie she was going to do based on, I forget which ride, the Tower of Terror. She was gonna star a Tower of Terror movie. That’s a bad idea anyway. So but I thought Jungle Cruise was a bad idea and it appears to be doing well.
But is Scarlett Johansen a needle mover? In the right role she is. But Disney has 1000’s of characters in its IP. And it probably wasn’t going to go back to Black Widow anyway, though, I’m not sure why you can’t have a sequel to your prequel and just keep it in that universe. So I don’t think this creates an opportunity. Matt, you’re welcome to weigh in here.
Matt Cochrane: No, I agree. I think it’s mostly about IP. We’re could have a whole conversation about movies based on rides, which I also think it’s not a good idea, but Pirates of the Caribbean was hugely successful. So maybe I’m wrong, too. Look, when it’s all said and done, and can they find other actresses to fill that role capably? Yes. Will they? Yes. Like it’s about the IP, her character in the Marvel in the MCU seemed like it was kind of at an end though. I will say with Loki and with this prequel, they kind of showed there’s many ways around that. So who knows, but I don’t think it’s a big deal.
Dan Kline: The end result here is that they are going to pay her contractually on some basis. They’re going to figure out what this would have made. She’s going to get the money anyway. It never should have gotten public. And now you have, I’m forgetting her name, the woman who starred in Cruella De Ville is thinking about suing, you’re gonna see a ripple effect here.
But the reality is, and this was handled correctly, during the call, when they made those deals, they did not know we’d have a pandemic, they did not know releasing on Disney+ was going to be an option or maybe even a good option. So Disney very quietly has to go back to all of its big actors that have pre-existing contracts, and just have make-goods. And as a shareholder, I don’t care if Disney has to pay people money, that it’s hard to figure out exactly how much it would owe. Because this has been a big driver for Disney+. And as we move on, we’re gonna move on from Disney. And we’re gonna talk about, Go ahead, Matt.
Matt Cochrane: Real quick, Dan, I know we’ve passed this topic. But we do have a graphic from our friend at The Science of Hitting (@TSOH_Investing), so just going back to Disney+, and just showing what they are contributing now to, to the overall revenue line. And just see how much this is growing quarter by quarter. Again, this is from The Science of Hitting, he’s been on the podcast a few times. I think he’ll be on more.
But like, it just shows like just quarter by quarter how much this is contributing at an annual run rate and expect this number to keep going up. It’s already at $6 billion now at an annual run rate. next quarter. That’s going to be close to seven. So look, Disney+ is becoming a much bigger contributor to Disney’s top line. And going back to what we were saying earlier, just a huge success for the company.
Dan Kline: Yeah, and it’s also important to note that while their content spend is increasing, you can’t make all those Star Wars shows without spending more money. Their technology spend was very front loaded, not that there won’t always be evolutions and spending on the app, but they are not going to need to spend the billions of dollars they did to develop this platform. Not entirely from scratch because it was was built on existing stuff they own but to develop this in the first place.
Got a great question from Daniel Delgado or more of a comment. Well, we’ll share this one before we move on here. If you want to bring that up JT, who is going to be watching Jungle Cruise with his family later this evening. But Daniel Delgado says “the airline cancellations make people’s vacations a bad vacation experience at the moment more out of pocket experience to go to go anywhere”. So there are some negatives right now with the airlines we’ve seen some pretty big cancellations with Spirit with with some of the other airlines with Delta and American. Delta in my experience hasn’t been great.
That being said, Orlando was such a heavy flight visit. It’s not like when your flight to Columbia, South Carolina gets canceled when there are, whatever it is, 42 flights a day out of JFK and LaGuardia to Orlando, having flights moved around and canceled is frustrating, but it’s not the same issue of if your one flight a day to Nassau Bahamas is canceled. Or your or your flight that gets you to Houston so you can fly to Cozumel or whatever it might be. So I do think also that yes, you might be mad at the airline. I don’t think that’s going to translate to Disney. And I don’t think a year from now when you’re ready to take another Disney vacation. You’re not going to assume that that’s been fixed.
So it is a factor. It is absolutely factored into my willingness to fly certain places. I’m flying to Vegas on Sunday, and I very specifically booked my flight there so my connection is on the same plane. Meaning if my flight leaves late, I’m already on the plane, that’s my connection. So I can’t miss my connection. Less important when I’m coming home, because I have things to do when I get there. When I come home, I have some flexibility. So that was a great question.
Matt Cochrane: Dan, let me piggyback on that question, and ask you another question, so we talked about airline cancellations. There’s a huge rental car shortage right now. And you’ve talked about, like, I don’t think publicly though, like how that might be good for Disney. Can you explain that?
Dan Kline: Yeah, absolutely. So I’ve talked about this on the show before. And by the way, The Science of Hitting will be on this program next week. He’s a really interesting guy, and a friend of Matt and a new friend of mine. But that being said, Yeah, I own a rental property near Disney. And it was busy all summer, because Florida residents had their kids out of school. It’s a great family destination, it’s got a bunch of pools. And it’s a fun place to be even if you don’t go to the parks. But most of our traffic now would be people going to the parks, Disney never has a slow season.
But because there are no rental cars. And we just started school here. So you see a slowdown in the “local with kids” tourist market. And normally you start to hit in, well, schools in New England, don’t go back until September or late August. And then you start having the rolling school vacations. Well, none of those people can stay at my property because they can’t affordably rent a car.
So if they can stay at my two bedroom, 1,400 square foot condo for $150 a night, but they have to spend $150 a night to rent a car, they’re gonna go well wait, I could stay at Disney’s Art of Animation, or even a nicer Disney hotel, for $120, $150, $200, it doesn’t matter and I don’t need transportation because we’ve got the skyliner and the monorail and the buses and all and the boats and all the different ways to get around.
So I actually think the current conditions mean that almost everybody who booked a November-December, and those are incredibly busy months, the Thanksgiving through Christmas season at Disney is a, sold out, locals don’t go anywhere near it time at Disney. Maybe you walk through the hotels to see how they’re decorated. But this is one of those things where if you’re normally someone who’s frugal and stays off property, or wants more space and stays off property. That’s simply not an option unless you’re going to drive. So that yeah, that’s going to be very, very good for Disney. That is a great comment, Matt, I appreciate you asking me there.
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