- Lower network advertising revenue was attributable to fewer impressions from lower average viewership
- The decrease at the owned TV stations was due to lower political advertising revenue
Equity in the Income of Investees
Income from equity investees increased due to improved results from A+E Television Networks (A+E) driven by lower marketing costs and higher income from program sales, partially offset by a decrease in affiliate revenue.
Direct-to-Consumer
Direct-to-Consumer (Disney+, Disney+ Hotstar and Hulu) revenues and operating loss are as follows:
The decrease in operating loss was due to:
- Higher subscription revenue attributable to:
- Increases in retail pricing at Disney+ Core and Hulu
- Subscriber growth at Disney+ Core and Hulu
Fourth Quarter of Fiscal 2023 Comparison to Third Quarter of Fiscal 2023
The following tables and related discussion present additional information about our Disney+ and Hulu direct-to-consumer (DTC) product offerings (1) on a sequential quarter basis.
Paid subscribers (1) at:
Domestic (U.S. and Canada)
International (excluding Disney+ Hotstar) (1)
Average Monthly Revenue Per Paid Subscriber (1) for the quarter ended:
Domestic (U.S. and Canada)
International (excluding Disney+ Hotstar) (1)
See discussion on page 15—DTC Product Descriptions and Key Definitions
Total may not equal the sum of the column due to rounding
Domestic Disney+ average monthly revenue per paid subscriber increased from $7.31 to $7.50 due to higher advertising revenue.
International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $6.01 to $6.10 due to an increase in average retail pricing, partially offset by a higher mix of subscribers to promotional offerings.
Disney+ Hotstar average monthly revenue per paid subscriber increased from $0.59 to $0.70 due to a lower mix of wholesale subscribers and higher advertising revenue.
Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.39 to $12.11 primarily due to lower advertising revenue and a higher mix of subscribers to multi-product offerings.
Hulu Live TV + SVOD average monthly revenue per paid subscriber decreased from $91.80 to $90.08 primarily due to lower advertising revenue.
Content Sales/Licensing and Other
Content Sales/Licensing and Other revenues and operating loss are as follows:
The increase in operating loss was due to:
- The performance of The Haunted Mansion in the current quarter compared to Thor: Love and Thunder in the prior-year quarter, partially offset by lower theatrical marketing costs for future releases
- An increase in home entertainment distribution results driven by higher unit sales
Sports revenues and operating income are as follows:
Operating income (loss)
Equity in the income of investees
Higher domestic ESPN operating results were primarily due to:
- A decrease in programming and production costs reflecting lower college football costs attributable to the non-renewal of certain contracts
- Growth in ESPN+ subscription revenue resulting from an increase in retail pricing and subscriber growth
- Lower marketing costs
- A modest increase in advertising revenue
- A decrease in affiliate revenue due to fewer subscribers and the temporary suspension of carriage with an affiliate, partially offset by higher contractual rates
Fourth Quarter of Fiscal 2023 Comparison to Third Quarter of Fiscal 2023
The following table presents additional information about ESPN+ on a sequential quarter basis.
Paid subscribers (1) at: (in millions)
Average Monthly Revenue Per Paid Subscriber (1) for the quarter ended:
See discussion on page 15—DTC Product Descriptions and Key Definitions
Experiences
Experiences revenues and operating income are as follows:
Domestic Parks and Experiences
The increase in operating income at our domestic parks and experiences was due to:
- Growth at Disney Cruise Line resulting from increases in passenger cruise days and average ticket prices
- An increase at Disney Vacation Club attributable to sales of The Villas at Disneyland Hotel in the current quarter
- Lower results at our domestic parks and resorts, which reflected:
- A decrease at Walt Disney World Resort resulting from:
- Higher costs attributable to accelerated depreciation related to the closure of Star Wars: Galactic Starcruiser and inflation
- To a lesser extent, lower guest spending driven by a decrease in average daily hotel room rates
- Higher attendance
- Increased guest spending primarily due to higher average ticket prices
- Higher costs due to inflation
International Parks and Experiences
Higher international parks and experiences’ operating results were due to:
- An increase in operating results at Shanghai Disney Resort due to:
- Guest spending growth attributable to an increase in average ticket prices
- Higher volumes due to an increase in attendance
- Guest spending growth due to an increase in average ticket prices
- Higher volumes resulting from increases in attendance and occupied room nights. Results reflected 81 days of operations in the current quarter compared to 65 days in the prior-year quarter.
- Increased costs primarily attributable to new guest offerings and inflation
OTHER FINANCIAL INFORMATION
DTC Streaming Businesses:
Revenue and operating loss for our combined DTC streaming businesses, which consist of the Direct-to-Consumer line of business at the Entertainment segment and ESPN+ at the Sports segment, are as follows:
Operating loss (1)
DTC streaming businesses operating loss is not a financial measure defined by GAAP. The most comparable GAAP measures are segment operating income for the Entertainment segment and Sports segment. See the discussion on page 20 for how we define and calculate this measure and a reconciliation thereof to the most directly comparable GAAP measures.
Corporate and Unallocated Shared Expenses
Corporate and unallocated shared expenses decreased $41 million for the quarter, from $334 million to $293 million, due to lower compensation and human resource-related costs.
Restructuring and Impairment Charges
In the current quarter, the Company recorded charges of $1,021 million comprising:
- $721 million of goodwill impairments related to our general entertainment and international sports linear networks
- $141 million for an impairment of an equity investment
- $137 million primarily for impairments of licensed content to align with the strategic change in our approach to content curation
- $22 million for severance
Other Income (Expense), net
In the prior-year quarter, the Company recorded a $63 million gain to adjust its investment in DraftKings, Inc. to fair value.
Interest Expense, net
Interest expense, net was as follows:
Interest income, investment income and other
Interest expense, net
The increase in interest expense was primarily due to higher average rates, partially offset by lower average debt balances and higher capitalized interest.
The increase in interest income, investment income and other resulted from higher interest income on cash balances driven by an increase in interest rates, and a larger benefit from pension and postretirement benefit costs, other than service cost.
Equity in the Income of Investees
Equity in the income of investees was as follows:
Amounts included in segment results:
Amortization of TFCF intangible assets related to equity investees
Equity in the income of investees
Restructuring and impairment charges include the impact of a content license agreement termination with A+E, which generated a gain at A+E. The Company’s 50% interest in this gain was $56 million (A+E gain).
Income from equity investees increased $85 million, to $227 million from $142 million, due to higher income from A+E.
Income Taxes
The effective income tax rate was as follows:
Income from continuing operations before income taxes
Income tax expense on continuing operations
Effective income tax rate – continuing operations
The decrease in the effective income tax rate was due to lower average tax rates on foreign earnings in the current quarter compared to the prior-year quarter. This benefit was largely offset by a less favorable effect from adjustments related to previous years’ tax matters and an unfavorable impact from the goodwill impairment, which was not tax deductible.
Noncontrolling Interests
Net income attributable to noncontrolling interests was as follows:
Net income from continuing operations attributable to noncontrolling interests
The increase in net income from continuing operations attributable to noncontrolling interests was due to improved results at our Asia Theme Parks and higher accretion of NBC Universal’s interest in Hulu.
Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.
FULL YEAR CASH FLOW STATEMENT INFORMATION
Cash provided by operations and free cash flow were as follows:
Cash provided by operations
Investments in parks, resorts and other property
Free cash flow (1)
Free cash flow is not a financial measure defined by GAAP. See the discussion on pages 19 through 20.
Cash provided by operations increased by $3.9 billion from $6.0 billion in the prior year to $9.9 billion in the current year. The increase was primarily due to lower spending on film and television content and higher operating income at Experiences, partially offset by the timing of payments for sports content.
Capital Expenditures and Depreciation Expense
Investments in parks, resorts and other property were as follows:
Total investments in parks, resorts and other property
Capital expenditures were comparable to the prior year as lower spending at Experiences was offset by higher spending for Corporate facilities and at Entertainment. The decrease in spending at Experiences was due to lower spending on cruise ship fleet expansion. The increase in spending at Entertainment was driven by higher technology spending to support our streaming services.
Depreciation expense was as follows:
Total depreciation expense
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; $ in millions, except per share data)
September 30, 2023
September 30, 2023
Costs and expenses
Restructuring and impairment charges
Other income (expense), net
Interest expense, net
Equity in the income of investees
Income from continuing operations before income taxes
Income taxes on continuing operations
Net income from continuing operations
Loss from discontinued operations, net of income tax benefit of $0, $0, $0 and $14, respectively
Net income from continuing operations attributable to noncontrolling interests
Net income attributable to The Walt Disney Company (Disney)
Earnings (loss) per share attributable to Disney (1) :
Weighted average number of common and common equivalent shares outstanding:
(1) Total may not equal the sum of the column due to rounding.
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; $ in millions, except per share data)
September 30, 2023
Cash and cash equivalents
Other current assets
Total current assets
Produced and licensed content costs
Parks, resorts and other property
Attractions, buildings and equipment
Projects in progress
Intangible assets, net
LIABILITIES AND EQUITY
Accounts payable and other accrued liabilities
Current portion of borrowings
Deferred revenue and other
Total current liabilities
Deferred income taxes
Other long-term liabilities
Commitments and contingencies
Redeemable noncontrolling interests
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares
Accumulated other comprehensive loss
Treasury stock, at cost, 19 million shares
Total Disney Shareholders’ equity
Total liabilities and equity
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; $ in millions)
September 30, 2023
OPERATING ACTIVITIES
Net income from continuing operations
Depreciation and amortization
Impairments of produced and licensed content costs and goodwill
Net (gain)/loss on investments
Deferred income taxes
Equity in the income of investees
Cash distributions received from equity investees
Net change in produced and licensed content costs and advances
Pension and postretirement medical cost amortization
Changes in operating assets and liabilities
Accounts payable and other liabilities
Cash provided by operations – continuing operations
INVESTING ACTIVITIES
Investments in parks, resorts and other property
Proceeds from sales of investments
Cash used in investing activities – continuing operations
FINANCING ACTIVITIES
Commercial paper payments, net
Reduction of borrowings
Proceeds from exercise of stock options
Contributions from / sales of noncontrolling interests
Acquisition of redeemable noncontrolling interests
Cash used in financing activities – continuing operations
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations – discontinued operations
Cash used in financing activities – discontinued operations
Cash used in discontinued operations
Impact of exchange rates on cash, cash equivalents and restricted cash
Change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
DTC PRODUCT DESCRIPTIONS AND KEY DEFINITIONS
In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered as a standalone service or together as part of various multi-product offerings. Hulu Live TV + SVOD includes Disney+ and ESPN+. Disney+ is available in more than 150 countries and territories outside the U.S. and Canada. In India and certain other Southeast Asian countries, the service is branded Disney+ Hotstar. In certain Latin American countries, we offer Disney+ as well as Star+, a general entertainment SVOD service, which is available on a standalone basis or together with Disney+ (Combo+). Depending on the market, our services can be purchased on our websites or through third-party platforms/apps or are available via wholesale arrangements.
Paid subscribers reflect subscribers for which we recognized subscription revenue. Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Subscribers to multi-product offerings in the U.S. are counted as a paid subscriber for each service included in the multi-product offering and subscribers to Hulu Live TV + SVOD are counted as one paid subscriber for each of the Hulu Live TV + SVOD, Disney+ and ESPN+ services. In Latin America, if a subscriber has either the standalone Disney+ or Star+ service or subscribes to Combo+, the subscriber is counted as one Disney+ paid subscriber. Subscribers include those who receive a service through wholesale arrangements including those for which the service is distributed to each subscriber of an existing content distribution tier. When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions.
International Disney+ (excluding Disney+ Hotstar)
International Disney+ (excluding Disney+ Hotstar) includes the Disney+ service outside the U.S. and Canada and the Star+ service in Latin America.
Average Monthly Revenue Per Paid Subscriber
Hulu and ESPN+ average monthly revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding revenue earned from selling advertising spots to other Company businesses) and premium and feature add-on revenue but excludes Premier Access and Pay-Per-View revenue. The average revenue per paid subscriber is net of discounts on offerings that carry more than one service. Revenue is allocated to each service based on the relative retail or wholesale price of each service on a standalone basis. Hulu Live TV + SVOD revenue is allocated to the SVOD services based on the wholesale price of the Hulu SVOD Only, Disney+ and ESPN+ multi-product offering. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third-party platforms.
NON-GAAP FINANCIAL MEASURES
This earnings release presents diluted EPS excluding certain items, total segment operating income, free cash flow, and DTC streaming businesses operating income (loss), all of which are important financial measures for the Company, but are not financial measures defined by GAAP.
These measures should be reviewed in conjunction with the most comparable GAAP financial measures and are not presented as alternative measures of diluted EPS, income from continuing operations before income taxes, cash provided by continuing operations, or Entertainment and Sports segment operating income (loss) as determined in accordance with GAAP. Diluted EPS excluding certain items, total segment operating income, free cash flow, and DTC streaming businesses operating income (loss) as we have calculated them may not be comparable to similarly titled measures reported by other companies.
Diluted EPS excluding certain items
The Company uses diluted EPS excluding (1) certain items affecting comparability of results from period to period and (2) amortization of TFCF and Hulu intangible assets, including purchase accounting step-up adjustments for released content, to facilitate the evaluation of the performance of the Company’s operations exclusive of these items, and these adjustments reflect how senior management is evaluating segment performance.
The Company believes that providing diluted EPS exclusive of certain items impacting comparability is useful to investors, particularly where the impact of the excluded items is significant in relation to reported earnings and because the measure allows for comparability between periods of the operating performance of the Company’s business and allows investors to evaluate the impact of these items separately.
The Company further believes that providing diluted EPS exclusive of amortization of TFCF and Hulu intangible assets associated with the acquisition in 2019 is useful to investors because the TFCF and Hulu acquisition was considerably larger than the Company’s historic acquisitions with a significantly greater acquisition accounting impact.
The following table reconciles reported diluted EPS from continuing operations to diluted EPS excluding certain items for the fourth quarter:
($ in millions except EPS)
- A decrease at Walt Disney World Resort resulting from: